KLA Q4 2025 Earnings Report

KLA EPS Results

• Actual EPS: $9.38
• Consensus EPS: $8.53
• Beat/Miss: Beat by +$0.85
• One Year Ago EPS: $6.60

KLA Revenue Results

• Actual Revenue: $3.17 billion
• Expected Revenue: $3.08 billion
• Beat/Miss: Beat by +$97.72 million
• YoY Revenue Growth: +23.60%

KLA Announcement Details

• Quarter: Q4 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 5:00PM ET

KLA (NASDAQ:KLAC), together with its subsidiaries, engages in the design, manufacture, and marketing of process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB and Component Inspection. The company offers inspection and review tools to identify, locate, characterize, review, and analyze defects on various surfaces of patterned and unpatterned wafers; metrology systems that are used to measure pattern dimensions, film thickness, film stress, layer-to-layer alignment, pattern placement, surface topography, and electro-optical properties for wafers; chemical process control equipment; wired and wireless sensor wafers and reticles; wafer defect inspection, review, and metrology systems; reticle inspection and metrology systems; and semiconductor software solutions that provide run-time process control, defect excursion identification, process corrections, and defect classification to accelerate yield learning rates and reduce production risk. It also provides etch, plasma dicing, deposition, and other wafer processing technologies and solutions for the semiconductor and microelectronics industry. In addition, the company offers direct imaging, inspection, optical shaping, inkjet and additive printing, UV laser drilling, and computer-aided manufacturing and engineering solutions for the PCB market; inspection and electrical testing systems to identify and classify defects, as well as systems to repair defects for the display market; and inspection and metrology systems for quality control and yield improvement in advanced and traditional semiconductor packaging markets. The company was formerly known as KLA-Tencor Corporation and changed its name to KLA Corporation in July 2019. KLA Corporation was incorporated in 1975 and is headquartered in Milpitas, California.

KLA Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: KLA reported Q2 revenue of $3.175 B and non-GAAP EPS of $9.38, with record free cash flow exceeding $1 B—all above guidance.
• Positive Sentiment: Demand remains strong for KLA’s process control tools in AI infrastructure, leading-edge logic, high-bandwidth memory, and advanced packaging.
• Positive Sentiment: Full-year advanced packaging revenue forecast was raised to over $925 M from $850 M, driven by growing 2.5D/3.5D packaging adoption.
• Neutral Sentiment: For Q3, KLA expects revenue of $3.15 B ± $150 M and a 62% ± 1% gross margin, with a 50–100 bp tariff headwind.
• Positive Sentiment: KLA maintains a mid-single-digit outlook for 2025 WFE growth and expects to outperform the market, with early 2026 customer discussions indicating further industry expansion.

Presentation

[Operator]

Good afternoon, everyone. My name is Bo, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June Quarter twenty twenty five Earnings Conference Call and Webcast. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead, sir.

[Kevin Kessel, VP - IR at KLA]

Welcome to the June 2025 quarterly earnings call. I am joined by our CEO, Rick Wallace and our CFO, Brent Higgins. We will discuss today's results as well as our September outlook released after the market close and available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non GAAP financial basis unless otherwise specified. All full year references may refer to calendar years.

[Kevin Kessel, VP - IR at KLA]

The earnings materials contain a detailed reconciliation of GAAP to non GAAP results. PLA's IR website also contains future events, presentations, corporate governance information and links to our SEC filings. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors 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.

[Kevin Kessel, VP - IR at KLA]

Rick will start with introductory comments on the business environment and our quarter, followed by Bren with financial highlights and our outlook. Now over to Rick.

[Rick Wallace, President, CEO & Director at KLA]

Thanks, Kevin. I'm going to cover business highlights for the June, commentary on KLA's relevance in the AI infrastructure build out. For the June, KLA's results were strong across the board and we were at or above the high end of our guidance ranges. Specifically, revenue was $3,175,000,000 non GAAP diluted EPS was $9.38 and GAAP diluted EPS was $9.06 We also had record free cash flow of over $1,000,000,000 for the quarter. Haley's leadership and process control has put the company in a unique position at the center of enabling success for our customers to build out infrastructure to support artificial intelligence.

[Rick Wallace, President, CEO & Director at KLA]

Prioritized investment to ramp AI capabilities has fueled growth at the leading edge across the semiconductor industry through more complex designs, faster product cycles, higher value wafers and increased demand for advanced packaging. In DRAM, investments in AI have been focused on high bandwidth memory, which demands higher performance, enhanced reliability, reduced redundancy and more sophisticated logic circuitry at base die chips that control the HBM stack. Demand for leading edge logic, HBM and advanced packaging capabilities were the key contributors to KLA's performance in the June. The importance of process control continues to increase due to semiconductor scaling, new architectures and materials and increasing designs. In particular, process control can improve time to results by debugging process integration challenges in the fab ramp phase and optimizing yield across a high volume manufacturing environment with high semiconductor device design mix.

[Rick Wallace, President, CEO & Director at KLA]

Additionally, the evolution and complexity of requirements for advanced packaging is creating new opportunities for the value of KLA's process control and process solutions. Finally, this leads to increased relevance for KLA's service business as KLA systems become more technically complex, are utilized for longer periods where they're expecting optimal tool performance and availability. To deliver solutions to meet this demand, the company leverages the KLA operating model to focus on prioritizing and productizing new innovation in our product roadmaps and ensuring that our business operations can scale and execute to capitalize on strong growth and expanded market share in the most critical markets for our customers. To date, we've seen no material changes in customer demands or on announced investment plans. As a result, our WFE assessment for 2025 is consistent with our expectations that were stated last quarter.

[Rick Wallace, President, CEO & Director at KLA]

There are more details about this quarter's highlights in our shareholder letter, letter, but in short, KLA grew revenue 24% year over year in the June with sustained strong investment in leading edge foundry and logic and HPM. This quarter also marked another period of strong momentum for Advanced Packaging portfolio. We now expect Advanced Packaging Systems related revenue to exceed $925,000,000 in calendar twenty twenty five, up from our previous estimate of $850,000,000 last quarter and over $500,000,000 last year. In Services, our business grew to $7.00 $3,000,000 in the June, up 5% sequentially and 14% year over year. Finally, the June was strong from a cash flow and capital returns perspective.

[Rick Wallace, President, CEO & Director at KLA]

Quarter over week free cash flow topped $1,000,000,000 for the first time, ending at $1,065,000,000 For the last twelve months, cash flow was $3,750,000,000 with a free cash flow margin of 31% over the same period. Total capital return in the June was $680,000,000 comprised of $426,000,000 in share repurchases and $254,000,000 in dividends. Total capital return over the past twelve months was $3,050,000,000 KLA's June results reaffirm our leadership in process control and the strength of our broad and differentiated portfolio. They also demonstrate the essential role KLA's products and services play in supporting semiconductor industry growth. Our consistent execution reflects the resilience of the KLA operating model, the dedication of our global teams and our disciplined capital allocation to invest in our business over the long run and maximize long term shareholder value. And with that, I'll turn the call over to Brett.

[Bren Higgins, EVP & CFO at KLA]

Thanks, Rick. Daly's June results were strong. Revenue was $3,175,000,000 above the guidance midpoint of 3,075,000,000.000 Non GAAP diluted EPS was $9.38 above its guidance range.

[Bren Higgins, EVP & CFO at KLA]

GAAP diluted EPS was $9.06 which was at the upper end of the guidance range. At the guided tax rate of 13.5%, non GAAP diluted earnings per share would have been $9 Gross margin was 63.2%, slightly above the midpoint of guidance as the quarter played out mostly as expected. Operating expenses were $6.00 $3,000,000 about $8,000,000 above the guidance midpoint. Operating expenses were comprised of $353,000,000 in R and D and $250,000,000 in SG and A. Operating margin was 44.2%.

[Bren Higgins, EVP & CFO at KLA]

Other income and expense net was a $23,000,000 expense with upside from guidance provided by a favorable mark to market adjustment of the strategic supplier investment. The quarterly effective tax rate was 9.9%, well below guidance as various discrete items impacted the quarter's result. Net income was $1,240,000,000 GAAP net income was $1,200,000,000 cash flow from operations was 1,160,000,000 and free cash flow was $1,060,000,000 The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides. Moving to the balance sheet, we ended with $4,500,000,000 in total cash, cash equivalents and marketable securities and debt of 5,900,000,000.0 The company has a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies. The cornerstone of KLA's business is consistent strong free cash flow generation driven by one of the best operating models in the industry and a predictable and highly differentiated service business.

[Bren Higgins, EVP & CFO at KLA]

This helps drive a comprehensive capital return strategy and includes consistent dividend growth and increasing share repurchases over the long term. Our recent actions emphasize our commitment to capital returns and our confidence in the long term shareholder value accretion of KLA. On 04/30/2025, we announced the sixteenth consecutive annual dividend increase, which was up 12% to $1.9 per share per quarter or an annualized dividend of $7.6 per share. Along with this action, we also announced a new $5,000,000,000 share repurchase authorization. I'll now turn to the outlook. It remains driven by increasing investment in leading edge logic, high bandwidth memory and advanced packaging. For WFE in 2025, as stated earlier, we are maintaining our original outlook for mid single digit growth in WFE from approximately $100,000,000,000 in 2024. This growth is expected to be driven principally by increasing investment in both leading edge foundry logic and memory to support growing AI and premium mobile demand, partially offset by lower overall demand from China.

[Bren Higgins, EVP & CFO at KLA]

Given KLA's strong business momentum, expanding market share opportunities, the higher process control intensity at the leading edge across all segments, We remain confident in our ability to outperform the overall WFE market in 2025. Finally, early customer discussions are constructive on expectations for calendar year 2026 to be a growth year for the industry. ALE's unique product portfolio differentiation and value proposition are focused on enabling technology transitions, accelerating process node capacity ramps and ensuring yield entitlement and high volume production. We continue to be encouraged that our customer discussions on product roadmaps and capacity planning have remained consistent. In this industry environment, KLA will stay focused on supporting customers, executing product roadmaps and driving productivity across the enterprise.

[Bren Higgins, EVP & CFO at KLA]

ALA September guidance is as follows. Total revenue is expected to be $3,150,000,000 plus or minus $150,000,000 Our quarterly revenue expectation and general stability for the remainder of the calendar year remains consistent with that articulated over the past quarters. Foundry logic revenue from semiconductor customers is forecasted to be approximately 75% and memory is expected to be approximately 25% of semi process control systems revenue to semiconductor customers. Within memory, DRAM is expected to be about 79% and NAND the remaining 21%. As always, these business mix approximations are for our semiconductor customers only and do not completely represent our aggregate process control systems revenue.

[Bren Higgins, EVP & CFO at KLA]

Gross margin is forecasted to be 62% plus or minus one percentage point, reflecting a slightly weaker systems revenue expectation and a 50 to 100 basis point impact from announced global tariffs. This tariff impact estimate is below our original estimate of roughly 100 basis point headwind to gross margin that we discussed last quarter. This environment is new to our industry and the long term tariff situation remains unclear. We continue to assess the impact across our business and identify potential mitigation actions to reduce our exposure to this headwind over time. We will provide periodic updates on our assessment when appropriate.

[Bren Higgins, EVP & CFO at KLA]

For calendar twenty twenty five, based on the results for the June, guidance for the September and our expectations for the business mix across systems and services, including the systems product mix, tariffs and factory utilization. We expect gross margins for calendar twenty twenty five to remain approximately 62.5%. Operating expenses are forecasted to be approximately $615,000,000 in the September. As we continue to make product development and infrastructure investments to support expected revenue growth. Given our expectations for company growth and product development roadmap requirements, we will maintain our operating expense trajectory.

[Bren Higgins, EVP & CFO at KLA]

Our business model is designed to deliver 40% to 50% incremental non GAAP operating margin leverage on revenue growth over the long run. Other model assumptions include other income and expense net of approximately a $33,000,000 expense. The non GAAP effective tax rate assumption for the September and the remainder of the calendar year is 13.5% lower than the 14% we had previously estimated based on our expectations for the geographic distribution of income. For the September, GAAP diluted EPS is expected to be $8.28 plus or minus $0.77 and non GAAP diluted EPS of $8.53 plus or minus $77 EPS guidance is based on a fully diluted share count of approximately 132,400,000.0 shares. In conclusion, our near term revenue guidance remains stable indicating the continuation of current business levels and our customer discussions support this outlook.

[Bren Higgins, EVP & CFO at KLA]

Based on conversations with customers, we anticipate continued solid growth in calendar twenty twenty five. Given the revenue commentary for the remainder of the calendar year, we expect to meaningfully outperform the mid single digit WFE growth rate. ALA focuses on delivering a differentiated product portfolio that addresses customer technology roadmap requirements, which are driving our longer term relevance and growth expectations. ALA's business is well positioned for the current technology inflection. While we cannot ignore the near term geopolitical trends, we are encouraged by the customer engagement that informs our business forecast.

[Bren Higgins, EVP & CFO at KLA]

The long term secular trends driving semiconductor industry demand and investments in WFE and advanced packaging are compelling and represent a relative performance opportunity for KLA over the next several years. That concludes our prepared remarks. Let's begin the Q and A.

[Kevin Kessel, VP - IR at KLA]

Thanks, Bren. Bo, if you could please queue folks for questions.

[Operator]

And in the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll go first this afternoon to C. J. Muse of Cantor Fitzgerald. J.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Good afternoon. Thank you for taking the question. So I just would love to hit on your comment around early customer discussions constructed for growth in 2026. You work typically from eight plus month lead times. Obviously, you've got some visibility into '26. So we'd love to hear kind of how those conversations are going and what needs to happen to have firm conviction on growth in '26?

[Bren Higgins, EVP & CFO at KLA]

D. J. Hey, thanks for the question. And I think it's a little bit early for us to quantify it, but certainly we're encouraged by the discussions we're seeing. We think that as you look just across the industry based on those discussions that we'll see customers investing more.

[Bren Higgins, EVP & CFO at KLA]

Obviously, what's driving the space today is high performance compute and so that part of the market is strong. And we'll have to see how other end markets play out in terms of what that growth looks like. But certainly at the leading edge, we're encouraged by the activity we're seeing supported by that market. We're optimistic that we might see some broadening of investment there. DRAM continues to be strong fueled by HBM.

[Bren Higgins, EVP & CFO at KLA]

Flash is coming off of low levels, but I think the flash market continues to be constructive moving forward. Overall, legacy seems like it's bottomed. So I think we feel pretty good where that is. We'll see what growth looks like, but at least in terms of where it's at now, don't think it's getting worse. And then our modeling as it relates to native China activity is that it's likely somewhere in that we'll see how far down, but I think it's down after a couple of years of pretty elevated investment in 2023 and 2024.

[Bren Higgins, EVP & CFO at KLA]

So if you think that 2025 is down and we think 2026 is probably has some headwinds as well as that normalizes given most of the focus there is on legacy.

[Rick Wallace, President, CEO & Director at KLA]

Just to add, as we see the continued investment in the advanced logic, as Bren mentioned, we see momentum as more and more players are bringing their design.

[Rick Wallace, President, CEO & Director at KLA]

So you think about the sustained investment in advanced logic and then even some investment going back a node. So we're also seeing some additional so we feel really good about logicfoundry in terms of that overall momentum plus the packaging momentum we've talked about.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Very helpful. I guess on the domestic China front, talked earlier indication of lower again in 'twenty six. Curious, as three regions, Wuhan, Shanghai, Beijing are competing for supremacy and we've now gone from four to six large kind of players, How does that kind of inform your view? Does it give you a sense that things would only decline a little or a lot or just too early to tell? Thanks so much.

[Rick Wallace, President, CEO & Director at KLA]

Yes. I think it's too early to tell at this point. As I said, we had two years of a lot of backlog we had to shift through and work off, which we have done.

[Rick Wallace, President, CEO & Director at KLA]

And I think now that we're seeing investment from our other customers. We're seeing that drive our business outlook more strongly here moving forward. So we'll have to see as we move forward here. But my sense just in terms of looking at it bottoms up and trying to reconcile with some of the top down kind of market outlook information, I feel like it's probably got some headwinds to it in terms of the investment levels relative to '25.

[Operator]

Thank you. We'll go next now to Harlan Sur of JPMorgan.

[Harlan Sur, ED - Equity Research at J.P. Morgan]

Good afternoon and great job on the quarterly execution guys. Year to date, so March and June, your process control systems business, right, that's inspection and patterning. That's up 35% year over year. So it looks like you guys are setting up for another strong year of growth and maybe even more share gains. Right?

[Harlan Sur, ED - Equity Research at J.P. Morgan]

But within that, inspection is up 50% year to date, while patterning is kind of flattish, kind of similar to the profile of calendar 2024 where inspection drove most of the growth. So maybe you can just help us understand, a, the drivers of the massive strength in inspection? Is it broad based across optical, field, fair wafer, e beam? And then maybe help us understand the relatively flattish growth in patterning. And do you guys anticipate another year of total share gains in process control?

[Bren Higgins, EVP & CFO at KLA]

Yes. Harlan, thanks for the comments. A lot there. I'll try to unpack it a bit. I mean, certainly we've seen strong inflection in our optical pattern inspection business.

[Bren Higgins, EVP & CFO at KLA]

We were supply constrained in that business for some time. Now we have more supply and so we're shipping through a lot of backlog for that product and that product is well positioned and really critical for gate all around. So that's been a nice driver. Obviously, happened in Packaging has also been a nice driver for this part of the business. Sampling rates and Inspection given the challenges are very, very high.

[Bren Higgins, EVP & CFO at KLA]

And so that's been a nice tailwind for that part of the business as well. So Inspection has definitely been inflecting. As it relates to patterning, you have really three businesses that are in patterning. You have optical metrology, which is around overlay and then you also have film measurement, reticle inspection. And with overlay, as we've seen some slowdown in advanced litho from a customer point of view, there's an attach rate of that business to litho.

[Bren Higgins, EVP & CFO at KLA]

So that's reduced, I'd call it more really non consumption in that business. So that's been a little bit weaker. It's really the only business we have that has an attached to litho generally. Film Measurement, I think it's a little bit lumpy. We'd expect better than market growth out of that business as we go through the year for 2025.

[Bren Higgins, EVP & CFO at KLA]

And for Radical Inspection, it's a lumpy business. We have some large integers in there, but would expect to see that business grow meaningfully and in a record level for calendar 2025 versus 2024. So a little bit of just what happens in the quarter, but I think from a directional point of view, I think we'll see stronger patterning as we move through the second half of the year.

[Rick Wallace, President, CEO & Director at KLA]

Yes. And Harlan to your point, I think overall we are seeing process process control intensity continue to rise for all the reasons we've talked about, the advanced designs, large die.

[Rick Wallace, President, CEO & Director at KLA]

And so initially, at least a lot of that favors inspection, and Bren talked about some of the facts and patterning. And then the radical comes around. I mean for ALA, radical in 2025 is going to be a record year. So we feel good about where we are positioned there and we have more products coming along. So we feel process control intensity convincing us to strengthen and our market position is very strong.

[Harlan Sur, ED - Equity Research at J.P. Morgan]

Very insightful. Thank you for that. And yet again, you guys left your target for advanced packaging revenues from $8.50 to now 925,000,000 for calendar twenty five. That's up, like, 80% year over year. I assume it's a combination of HDM and two and a half d and three and a half d advanced packaging.

[Harlan Sur, ED - Equity Research at J.P. Morgan]

We know that many next generation two nanometer AI GPU XTU designs are targeted for this kind of 3.5 d packaging architecture, stack chips, more HBM stacks, just overall significantly more complex versus 2.5 d. But maybe you guys can just help us understand where are you guys seeing the incremental upside? I think this is like the third or fourth time that you revised your full year outlook for Advanced Packaging. So where are you guys seeing the incremental upside?

[Rick Wallace, President, CEO & Director at KLA]

So Harlan, you touched on a lot of it. And I think it's a combination of it took us a little while to have the products that were requested. And so a little bit of that is adoption and then some momentum once we started getting going. And then just the ramp is it's all comes back to the build out associated with the infrastructure. And for us, that's the third leg.

[Rick Wallace, President, CEO & Director at KLA]

We talked about logicfoundry, advanced designs, bigger die, talked about HBM and talked about packaging. And really, it's that part of packaging. And I think as our customers see success with our portfolio, we're gaining share. So the exciting part for us is apart from WFE dynamics, which I think we do spend an awful lot of time about, this is really outside of WFE. So we're seeing growth in packaging as a sector for inspection metrology.

[Rick Wallace, President, CEO & Director at KLA]

Also our process position there is good. And then we're gaining share. So you have a really nice combination. And when we talk to customers, we think we're closer to the at the beginning of this trend than at the end of it. We think this is there's a lot of growth to come.

[Bren Higgins, EVP & CFO at KLA]

Yes, Harlan, the other thing I'd say is just if you just go back just a short period of time, let's go back a few years in 2022 as a percent of Advanced Packaging, our Semi Process Control business, given the nature of the requirements was pretty low, probably about intensity. Today we're sitting somewhere around in that 5% to 6% range. So just in a few years we've seen our position change quite dramatically as requirements to Rick's point have increased. So we're pretty excited about the growth rate and opportunity there. And we think that this continues to be a growth area as we move into next year.

[Harlan Sur, ED - Equity Research at J.P. Morgan]

Thanks, Rick. Thanks, Bren.

[Operator]

Thank you. We'll go next now to Vivek Arya of Bank of America.

[Vivek Arya, Managing Director at Bank of America]

Thank you for taking my question. On the first one, the process control intensity in memory, I wanted to get your views on this. Historically, it used to be low closer to, I think, mature nodes. How is that process control intensity evolving as the industry is moving from traditional PDR DRAM to more high bandwidth memory? Is there a way to quantify what the benefits are to KLA because HVM is expected to be one of the fastest growth drivers in AI accelerators?

[Vivek Arya, Managing Director at Bank of America]

So I'm just curious to understand how your opportunity is evolving as industry migrates to HVM and then advanced versions of HVM?

[Rick Wallace, President, CEO & Director at KLA]

Yes. So I'll give you a qualitative and Bren can do the harder thing and give you more quantitative. Qualitatively, you have more advanced, bigger, more valuable buy with more challenging circuitry in the periphery and less redundancy. So and you have a tremendous pressure coming because these are in high use and therefore these die don't rest. These are unlike the duty cycle is high.

[Rick Wallace, President, CEO & Director at KLA]

So you've got it and they're part of an expensive system. So what our customers have said is they increased and as you know there's multiple players, they've increased the inspection both in the development but also in the build out and they're finding that they need everything they can get as to Incyte. And because these are more valuable die with less redundancy, the defectivity levels in the past that might have been acceptable are not. And so not acceptable now. So they need more coverage.

[Rick Wallace, President, CEO & Director at KLA]

They need higher tools, plus they're introducing new technology. So everything is driving toward higher process control intensity. We've been I don't know that we've been surprised, but we've been pleased by the adoption and we think there's more demand coming as people understand the challenges. And then there are roadmap cadence that's different than the consumer cadence was. So I think from their standpoint, they're going be a lot of pressure to deliver at yield.

[Rick Wallace, President, CEO & Director at KLA]

So that's what's happening and why this adoption is very different than memory has been in years for us. So when DRAM went to EUV, we started a pattern a couple of layers or few layers with EUV. We saw a step up in intensity. So process control intensity was somewhere around 9% to 10% of WFE back before. And then with the introduction of EUV, we saw that improve.

[Rick Wallace, President, CEO & Director at KLA]

We saw that improve about 100 basis points. When we moved to HBM, we think that there's another 100 basis points or so of opportunity there. We'll see how that plays out over time.

[Bren Higgins, EVP & CFO at KLA]

But as Rick said, as the requirements have changed, it's increased the value of our products and changed how customers sample and their expectations around reliability. You also have bigger die, which benefits everyone, but I think these some of these challenges that they have around the market requirements for HBM are benefiting process control uniquely.

[Bren Higgins, EVP & CFO at KLA]

And so we're seeing that on the logic side, but we're also seeing that on the memory side as well. So right now when we look at it, we think there's probably another incremental 100 bps on top of that. So if you go back pre EUV to where we are today, it's probably somewhere in the neighborhood of 200 basis points of higher process control intensity. Our share position and momentum is in a pretty good place. So we're encouraged by what we're seeing.

[Vivek Arya, Managing Director at Bank of America]

Very helpful. And then for my follow-up on gross margins kind of near and a little more medium term. So let's say December sales are flattish, should we assume gross margins stay flattish or are there any other mix effects, etcetera, that we should keep in mind? And then kind of more medium term, what are you doing to mitigate that tariff cost pressure? Can it be mitigated?

[Vivek Arya, Managing Director at Bank of America]

Like when should we assume that you have some alternatives in place to get the gross margins back to the trend line? Thank you.

[Bren Higgins, EVP & CFO at KLA]

Yes. So the first part of your question, we talked about our views of calendar twenty five gross margin at 62.5%. So if you take Q1 and Q2 and our guidance for Q3, that will lead you to an uptick in gross margin in the fourth quarter based on our expectations now around revenue mix as of this next quarter. So that should get you there. You can do the math and figure out how to get there.

[Bren Higgins, EVP & CFO at KLA]

But as it relates to tariffs, there's a lot. I mean, first of all, as I said in the prepared remarks, it's a new thing for our industry. It hasn't been a factor in our business operations historically. So now as we face the likelihood of higher structural tariffs moving forward. There are some business processes as it relates to how we move parts around, how do we leverage free trade zones and things like that to reduce leakage of tariffs as it where you pay a tariff, but then you have an opportunity when you turn around to export where you can reclaim or claw back the tariff that you pay related to the export.

[Bren Higgins, EVP & CFO at KLA]

So there are a lot of those dynamics that are mitigating factors. Obviously, if it drives structural cost increase, then that's something that we'll have to deal with both in our service and system businesses over time just like we would with any other cost increase. But we think that there's some opportunities to go do some things on the process side where, look, we got a lot to do. The ROI wasn't all that compelling even though it might have been a better process.

[Rick Wallace, President, CEO & Director at KLA]

Well, if you add in the economic costs of incremental tariffs, all of a sudden some of those issues rise up or opportunities rise up to priority scale.

[Rick Wallace, President, CEO & Director at KLA]

So that's really how we're thinking about it. I think for The Street in terms of how you're modeling KLA, I think that the 50 to 100 basis point guidance headwind is probably the way to think about it. And then as I start to see either some stability or some changes in terms of how we're doing things that reduce that, I'll provide that update when appropriate. Thank you.

[Operator]

Thank you. We'll go next now to Shane Brett of Morgan Stanley.

[Shane Brett, Equity Research Analyst at Morgan Stanley]

Thank you for letting me ask a question. Apologies for asking a bit of a near term question, but if I'm understanding this correctly, your September foundry logic revenue is likely to strengthen sequentially, your memory revenue across both DRAM and NAND will decline. I thought that the memory mix, specifically DRAM may uptick a bit more in the second half. So just talk about the big business mix here and if we could see a memory uptick in the December? Thank you.

[Bren Higgins, EVP & CFO at KLA]

Yes. The way it's lining up, I think that we'll see DRAM stronger in the December than the September.

[Rick Wallace, President, CEO & Director at KLA]

Got it. It's just really about timing of revenue, revenue recognition, those dynamics, the shipments, the final product acceptance processes that we run through that drive revenue into a particular quarter. But as I look at it and you think about some of the project timing that's out there, I would expect to see an uptick into the December.

[Shane Brett, Equity Research Analyst at Morgan Stanley]

Got it. Thank you very much. And for my follow-up, so at twenty twenty two Analyst Day, set out $14,000,000,000 revenue target for 2026, which I think was based on $125,000,000,000 WFE assumption. I think your market share gains have clearly checked above what you're probably thinking in 2022. Just could you talk about those market share gains and sort of where your kind of current assumptions are towards as we think towards 2026?

[Shane Brett, Equity Research Analyst at Morgan Stanley]

Not really asking for revenue guide, but if you can kind of give us a few crumbs on how to think about 2026? Thank you.

[Rick Wallace, President, CEO & Director at KLA]

Well, you're right. The 2026 plan assumed WFE level in the mid-one hundred twenty range. And so we'll see whether we get there or not. But I would say for Kaylee, we don't need 01/2025 to make that plan. Given the strength that we've seen in our share of WFE, the growth rates we've seen in packaging, obviously we've had some headwinds as it relates to export control in terms of lost opportunity, but also how that's affected our service business.

[Rick Wallace, President, CEO & Director at KLA]

But in general, we feel like we're pretty well positioned from a share of WFE point of view. We assumed a 7.25% share of WFE. If you take out Packaging, I think our share of WFE is approaching 8%, then you add in the Packaging opportunity. So we'll see. If I got WFE levels in the mid teens, I think we got a shot at it.

[Rick Wallace, President, CEO & Director at KLA]

But I think when you consider puts and takes, we don't need as much given the growth rates we've seen in our overall share of market. Now that's been intensity driven. I mentioned packaging. We're also I think pretty confident around some of the share opportunities we also have. That's all that's part of that number.

[Rick Wallace, President, CEO & Director at KLA]

The financial model underneath is operating very consistent. Absent the tariff effect, we'd probably be in line or maybe even slightly better on the gross margin side at that revenue level. So the rest of it is driven by our incremental operating margin model and our expectation of drop through to EPS based on business performance, but also capital structure action of EPS growth of 1.5 times our revenue growth rate. So it really is going to be predicated on where WFE ends up in terms of how we perform against that target. But the financial framework is executing as we expected.

[Shane Brett, Equity Research Analyst at Morgan Stanley]

Got it. Thank you very much.

[Operator]

Thank you. We go next now to Charles Hsu of Needham.

[Charles Shi, MD - Senior Analyst at Needham & Company]

Thanks for taking my question. Maybe my first question a little bit more about China. China as a percentage of sales 26% in March, 30% in Q2. So is the 30% still the right number kind of going into the second half of the year? Or shall we kind of expect some upside?

[Charles Shi, MD - Senior Analyst at Needham & Company]

Because the data point so far has suggested that there has been some upside in China WFE so far. But kind of wonder since you still view China WFE is coming down this year kind of want to get some thoughts there. Thanks.

[Bren Higgins, EVP & CFO at KLA]

Yes, Charles, and I'll try to unpack this a little bit. If you go back to earnings in January, we talked about our China business dropping to the 30% level assuming a $3 ish billion run rate and that's down from about 41% in 2024. So obviously Q1 was lower, which means that you're likely to see higher percentages as you move forward. So our we fast forward to April and the guidance in April was very consistent with that. If you look at where we sit today, I still see it at roughly 30% plus or minus.

[Bren Higgins, EVP & CFO at KLA]

Now the second half will be higher than the first half because you were 2630% Q2. So I think the second half is higher than the first half, but for the company overall, we're still in line with that 30% expectation plus or minus a couple of points. Now our business has strengthened. We were at $3,000,000,000 run rate. Now we just guided three fifteen.

[Bren Higgins, EVP & CFO at KLA]

So some of that strength has been reflected in China at a consistent percentage. So at the beginning of the year, we thought our China business would be down somewhere between 1520% overall. As I sit today, I think we're probably down somewhere between 1015% on just the general strengthening overall. So China behaving pretty much as expected and expected here to end up somewhere around 30%.

[Charles Shi, MD - Senior Analyst at Needham & Company]

Thanks, Brent. I appreciate the color. Maybe another relatively higher level question. I answered your I listened to your answers to the questions from other analysts on this call regarding cost of control intensity. I think historically, people kind of associate or positively correlate process control intensity with lithography intensity.

[Charles Shi, MD - Senior Analyst at Needham & Company]

I think lots of discussion on lithography intensity this year feels like the consensus is probably coming down. But I think that historical correlation kind of broken down over the past couple of years. Process control intensity actually was on the way up. Lethal probably kind of coming down if we remove any of the stockpiling in China, those kind of factors. So kind of wanted to get the sense from you guys, what do you see that the process control intensity?

[Charles Shi, MD - Senior Analyst at Needham & Company]

Why is that correlation breaking down? And what's the outlook going forward from here? Do you expect bifurcation is kind of going to be sustaining structural or maybe we'll get a mean reversion event at some point in the down the road? Thank you.

[Rick Wallace, President, CEO & Director at KLA]

Yes, that's an insightful question. If you go back in time and I won't go too far back, but often the process control for lithography was associated with wavelength shifts in lithography usually driven by one large manufacturer of a microprocessor. And so that was the cadence that kind of set everything. And so in those cases, you'd be going to a new design rule and you'd need new lithography, maybe the mix was different with the advance. And so you'd see intensity go up and those same drivers would be driving process control intensity to your point.

[Rick Wallace, President, CEO & Director at KLA]

What's changed quite a bit is the dynamics associated and it started happening a few nodes ago where we saw a proliferation in advanced designs at leading edge. Because historically what you also saw was fewer people designing at the leading edge. So therefore, was pretty correlated. But around seven nanometers, we started seeing more designs happening and the design intensity around the number of designs chasing leading edge doesn't really do anything for lithography intensity. In fact, it doesn't do anything for much capital intensity except for process control intensity because you have a higher degree of variability because you have more designs going through at the leading edge.

[Rick Wallace, President, CEO & Director at KLA]

You drive radical consumption up higher and that has been a very stable market. But more importantly, you have a very high mix fab where the variability is more and more challenged. And then you have to manage that in terms of how do you make sure you're yielding enough and not putting too many wafers in. That's all about process control. That's not about other things, not about litho.

[Rick Wallace, President, CEO & Director at KLA]

And then add to that, the latest thing that's accelerated even further is the number of large die and associated with AI. So you have yet another driver that's doing it. On top of all that, you have what's going on in advanced packaging, which is allowing people to integrate a lot and in many ways reduces the need for other equipment, but increases the need for process control. Lastly, you have what's going on in HBM. So it's kind of a perfect transition from a if your business is process control, this is a really good time because every one of these drivers is driving the intensity and the way that customers can afford to have more processes control as they don't need as much intensity in their other parts of semiconductor manufacturing.

[Rick Wallace, President, CEO & Director at KLA]

So you're exactly right, but it's really the proliferation of designs and the drivers around AI.

[Charles Shi, MD - Senior Analyst at Needham & Company]

Appreciate the insights, Rick. Thank you.

[Operator]

Thank you. We'll go next now to Tom O'Malley with Barclays.

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

Hey, guys. Thanks for taking my question. When you answered the question earlier in the call on 2026, and I appreciate it's early and you don't want to give more color, you talked about the broadening of leading edge trends, and I think you were very intentional around using that word. Are you talking about additional customers coming in on the leading edge side? Or you just talking about the broadening of opportunities in the existing pillars of customers that you already have?

[Rick Wallace, President, CEO & Director at KLA]

Both. Talking about both. We're seeing more people at the leading edge as we've talked about higher mix foundries. And for the first time, I think in quite a while, we're seeing more players doing leading edge or very close in proximity to leading edge across. So we're seeing some momentum there.

[Rick Wallace, President, CEO & Director at KLA]

Some of that's been in the news. And as a result, what we're seeing is a broadening of customers as well as a proliferation of design. And I think it is the proliferation of design that is driving the broadening of customers.

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

And when you guys look out into 2016, you obviously are also thinking look at this look at the environment you just described. You talked about a lot of different areas in which process control is going to do a lot better than other areas of equipment. How are you comfortable in talking about the strength of the broader market where you're kind describing a dynamic where maybe you're taking more of the pie and obviously having more of the pie, the market may look a lot bigger. So maybe can you walk us through like what you're doing to understand what your intensity is of total WFE next year? Do you see share gains?

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

And maybe the market isn't as big, but you maybe have a piece of that market that's a little bit larger. How do you kind of figure that out as you look at your forecast into next year?

[Rick Wallace, President, CEO & Director at KLA]

Well, I'll take the qualitative. Fran wants to do the quantitative part. We don't actually know exactly. What we know are what the trends are happening. And there's always been this thing about process control that kind of cuts both ways.

[Rick Wallace, President, CEO & Director at KLA]

One is can you solve these problems? And if you could, you people would buy systems to do it. But for a long time, there were a lot of unmet needs. So people would find other ways to solve those problems because eventually they're going to figure it out. And what I mean by that, let's say you need to find a specific defect in a specific part of the process, you need to segment that process to find it. If you don't have the tools that are actually capable of doing that, customers will figure out another way around it, maybe not nearly as efficient. But so part of what's changed is we have more of those tools and part of what the reason we have that is our portfolio has been strengthened through a lot of investment over the years. And we talked about quite a while ago, the repeated application of advanced processing of our own systems using AI has given us more ability to solve those problems in conjunction with some new product offerings such as our e beam portfolio means that we can give customers a better way to manage those. So from the standpoint of that, but I don't actually think in some customers, they are figuring out dynamically how much process control they need, and it's still incumbent on us to prove the value when they introduce it. But when we say we're pretty confident going into 2026, it's because we have more and more places where customers are telling us, in some regards, they're playing back to us what we may have said to them a while ago, we know we need more process control intensity.

[Rick Wallace, President, CEO & Director at KLA]

We need you to help us get that portfolio, and they're making sure that we have the ability to do that. Those are encouraging conversations that we're having now. And we understand why because we're involved in a lot of the debugging of these processes to understand. You also have architectural changes that are just making it harder. And so the dynamics of supporting these advanced nodes and as I mentioned before, we're in kind of the perfect storm for all the process flows, whether it's HVM and those are more challenging, whether it's advanced logic with bigger die and also the packaging.

[Rick Wallace, President, CEO & Director at KLA]

So that's why we feel pretty good about '26. And Brent can maybe add more color.

[Bren Higgins, EVP & CFO at KLA]

Yes. Look, we all know our own business is probably best. So when we try to provide some color on where the industry is, obviously, that's informed by what you know and are closest to.

[Bren Higgins, EVP & CFO at KLA]

So we thought that it was prudent at this point given the nature of customer conversations to provide our perspective on next year the way we did. To Rick's point, we do see opportunities for our business to continue to inflect. One thing about larger die density challenge where everybody benefits from bigger wafers. But the defect density challenges when you have large die creates new opportunities for process control. When you look at high performance compute, you also look at the value of those die.

[Bren Higgins, EVP & CFO at KLA]

And so that given the nature of that customers are investing more to ensure that those chips function as designed and the performance specs are quite rigorous. So all that gives us a certain amount of confidence around our own business. And I tried to do my best to give you at least the perspective that I have today at the July what next year what we think next year looks like.

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

Thank you. Appreciate that.

[Operator]

Thank you. We go next now to Joe Quatrochi of Wells Fargo.

[Joe Quatrochi, Director & Equity Research Analyst at Wells Fargo]

Yes. Thanks for taking the question. Maybe just a follow-up to that kind of line of questioning. If we think about just you talked about the rising and diversity of designs that starts in HPC increasing KLAs relevancy. I guess, how do you think about just the sample rates or what that does to sample rates for process control?

[Joe Quatrochi, Director & Equity Research Analyst at Wells Fargo]

Do we just think about that as being maybe the peak to trough is less steep on a new node ramping? Or is this kind of a step function higher in terms of sample rates?

[Rick Wallace, President, CEO & Director at KLA]

Yes. This is another interesting development, Joan, and I'll because we have that same question. If you go back historically, you'd have a new node, you would ramp at the beginning of time, you'd ramp it up and then you'd run it in volume. And so you'd see process control intensity most highest at the front end, right? That's what you're referring to?

[Rick Wallace, President, CEO & Director at KLA]

Yes. What's happened now What's happened now though is because there are multiple designs, what we're seeing is they'll debug the customer will debug a new process on a specific device type, a specific wafer and they'll ramp that. But not long after, you'll get other designs that are coming in that have their own version of those ramps and they're not the same. In many cases, the process flows for different customers are different. The die size might be different.

[Rick Wallace, President, CEO & Director at KLA]

So you're really having a compounding of ramps inside what looks like HBM. And a lot of these HBM fabs are actually doing process ramps of the new nodes plus there are continued improvements inside of that node in terms of what that capability. And even to one degree, we saw somebody go back to a prior node and introduce more process control because what was introduced into that prior node was a larger die. And so it's not the traditional model people think of when you go back in time of you ramp it and then you run it. That's not what's happening.

[Rick Wallace, President, CEO & Director at KLA]

There's multiple ramps because every one of these die these devices come in. There's some benefit to some customers to not be first with their advanced design. In fact, there's an economic benefit to coming in six months later, but it doesn't make it easier to ramp it in the production. So that's why when we look out and we look at the distribution and we were looking for is are we seeing that effect of seeing it front end loaded? And the answer is no.

[Rick Wallace, President, CEO & Director at KLA]

That's not what we're seeing. In fact, in some cases, we're seeing it going back because the yield these waivers are so valuable that if there's an entitlement of yield and they can get more, they're actually putting in more process control to squeeze those lines to get more capability. So very different than the traditional view of how process control ramps with the new technology node. Joe, the other thing is that when these nodes are well adopted, say the design levels are high, then that limits what our customers are able to do in terms of trying to reuse their equipment at least as it relates to our products. And so as we've had a litho roadmap, we've had new architectures, the Moore's Law attributes have been good that drive the design environment high, then it limits the reuse of capacity.

[Rick Wallace, President, CEO & Director at KLA]

There's a number of technical challenges that also limit it, but certainly the adoption levels of the leading edge by multiple designs is a factor as well.

[Bren Higgins, EVP & CFO at KLA]

And let me add two more things. Because you have multiple reticles, reticles have always been 100%, right? You're inspecting all the reticles to make sure and then you have a recall, but you're inspecting them to make sure they're good. And why?

[Bren Higgins, EVP & CFO at KLA]

Because they're so expensive and the cost of failure is so high. We're actually seeing that dynamic in packaging too because the cost of these advanced packages are so high that they're running at 100%. So that doesn't even fall off. That's just because of the cost structure of those. So multiple situations, it's not as easy to model as it used to be, but it's good for process control intensity.

[Rick Wallace, President, CEO & Director at KLA]

That's super helpful. And maybe just as

[Joe Quatrochi, Director & Equity Research Analyst at Wells Fargo]

a follow-up, I think earlier to your question, you said and correct me if I'm wrong, but you said reticle revenue reticle inspection revenue this year would be a record or pretty strong growth. Can you help us just understand like what's driving that? I know that like China had been a source of demand for that, but I think there's also quite a bit of demand on leading edge or N minus one nodes.

[Rick Wallace, President, CEO & Director at KLA]

Joe.

[Bren Higgins, EVP & CFO at KLA]

So China is a factor there, right, because the very limited number of captive mash shops or investments to develop a merchant mask ecosystem. There is legacy node radical tools that continuing to be a factor for us. Requalification opportunities in the fab given the nature of the number of designs, the value to Rick talked about and the limited use of pellicles is also a factor. The other thing you have that's also driving it is more single die since most of the reticles, let's say, 60% plus of reticles are single die reticles, you need to inspect those reticles against a reference.

[Bren Higgins, EVP & CFO at KLA]

And so whether that is a database reference of the design or whether that's different golden reference, then that's also a factor. We're also seeing benefit in terms of print check on the broadband plasma Gen four platform or Gen five, that one's a Gen five platform that is doing reticle qual as well. And all that business shows up in our optical inspection results and not in patterning. But there's a number of drivers and a ton of investment happening by customers to ensure that these reticles are the fidelity of the pattern is good and that they're not introducing any defectivity because you need 100% defect detection, reticle inspection before you print that defect on to every die. So a number of good drivers across multiple products.

[Rick Wallace, President, CEO & Director at KLA]

But just to point out, what Bren talked about using optical for print check that is not included when we say we're having a record here in reticle. It's without that. Got it. Thank you.

[Operator]

We'll go next now to Timothy Arcuri of UBS.

[Timothy Arcuri, Managing Director at UBS Group]

Thanks a lot. Ben, can you I know you're going to shift how you report backlog and RPO, but I think that's maybe with the new fiscal year. So can you give us RPO?

[Bren Higgins, EVP & CFO at KLA]

Yes. So we'll report in the 10 ks.

[Bren Higgins, EVP & CFO at KLA]

I think we're going to file it here in another week or so. RPO will be somewhere around in the neighborhood of $7,900,000,000 So it came down by like $1,000,000,000 It came down by about that much. Yes, we're starting to see, as we said earlier, as we shift through a lot of the long backlog customers now and some of the supply constrained products, we're now seeing our business being driven by our long standing customers that operate with shorter lead times. So now we're normalizing lead time. We've been talking about it for a number of quarters that we were moving towards it.

[Bren Higgins, EVP & CFO at KLA]

I think now we're getting into that range where, look, our long standing customers have historically six to eight month lead times. The Packaging business has two to three month lead times. So we're seeing a normalization of lead time that's happening here and that's affecting the backlog level. It took a while to get here. We were up at eighteen months of backlog.

[Bren Higgins, EVP & CFO at KLA]

Now we're down around eight months of backlog. You have to remember, the RPO number is significantly a systems number. So when you do the math on it, you have to compare it against the systems revenue. And so when you do that math, you end up in that seven to nine month range that I talked about.

[Timothy Arcuri, Managing Director at UBS Group]

Yes.

[Timothy Arcuri, Managing Director at UBS Group]

I mean, we've been talking about it for a while that it's going to come down. But it was the 1,000,000,000 that was stripped out by you, so basically that's canceled by you?

[Rick Wallace, President, CEO & Director at KLA]

No, no, no. That was part of our shipments. I mean, we don't really see our backlog canceled all that much.

[Rick Wallace, President, CEO & Director at KLA]

I mean, we had to strip out backlog as it relates to export controls when that happened. But whenever we make adjustments that are de booking adjustments, those are typically related to an event like that. Backlog tends to pull together when customer gets us an order. And you have to remember, we had a number of new customers that were doing greenfield projects that to get a slot when you want it, what do we require? We require an order.

[Rick Wallace, President, CEO & Director at KLA]

We require a deposit. We require letters of credit. So that was a big part of the backlog. Now you fast forward to where we are today and you look at our long standing customers that you know well, well those customers we build the forecast with. And so the order to shipment timing tends to be in that six to eight month timeframe.

[Rick Wallace, President, CEO & Director at KLA]

So we're seeing more of that business going forward and that's reflected in the lower backlog levels. I would expect it now that we normalize it to stay more or less in this range here going forward.

[Timothy Arcuri, Managing Director at UBS Group]

Thanks, Brad. And then just on service, you were thinking up 10% for the year, but you seem to be running after that. Is that like looking this year? Can you talk about that service?

[Rick Wallace, President, CEO & Director at KLA]

For the I'm sorry, Tim, Oh, you're breaking up a little service. Yes, overall service, I think we're in that ballpark. Yes, 10% plus range for the year.

[Timothy Arcuri, Managing Director at UBS Group]

Okay.

[Timothy Arcuri, Managing Director at UBS Group]

So it's but it's still going to go up sequentially in September, December, right?

[Rick Wallace, President, CEO & Director at KLA]

Yes.

[Timothy Arcuri, Managing Director at UBS Group]

Okay. Got it. Thanks.

[Bren Higgins, EVP & CFO at KLA]

It generally does, right? I think because as you add tools and tools come off of warranty, unless you have some situation where all of a sudden like you lose access to a fab and we thought that might put some pressure on sequential growth. But we've also seen the dynamics in our service business start to inflect in terms of performance requirements, availability requirements and our general attach rate. So it's the fifty second quarter of year over year growth for service and we'd expect to see sequential growth in service as we continue through the year.

[Operator]

Thank you. And ladies and gentlemen, we have time for one more question this evening. We'll take that now from Brian Chin of Stifel.

[Brian Chin, Director at Stifel Financial Corp]

Hi there. Thanks for sneaking me in here at the end. I think one of my questions has kind of been asked here, which you remarked on pretty well, which is basically that these data center chips are kind of breathing life into minus one nodes, it sounds like. I think that's something that's a pretty important thing. Maybe one last my question will be, I could be mistaken, but I think when you've discussed in the past, it felt like your near term opportunity set in Advanced Packaging was particularly in 2.5p or co op packaging rather than in HBM.

[Brian Chin, Director at Stifel Financial Corp]

Is that the case? And where is more is that the case I guess? And also are you addressing more inspection applications still or is metrology part of that as well?

[Bren Higgins, EVP & CFO at KLA]

Yes. Most of our share gains that we've seen so far have been in the logic area with co ops. Although we are seeing increased momentum in HBM. So we're pretty excited about directionally where that's going. So it certainly is informing our view of share opportunities.

[Bren Higgins, EVP & CFO at KLA]

It is more defect loaded than metrology because sampling rates for metrology are tend to be a little bit lower as the design rules that are typically used in packaging are larger. So that limits some of the metrology opportunities in the short run. But from an inspection point of view to Rick's earlier point, the sampling rates are incredibly high because you don't want to miss defects, you don't want to overkill devices either. So you don't want to underkill and miss something, you don't want to overkill either. And I think so that's driving higher sensitivity requirements from KLA.

[Brian Chin, Director at Stifel Financial Corp]

Great. Thank you.

[Operator]

Thank you. And at this time, Mr. Kessel, I'd like to turn things back to you, sir, for any

[Kevin Kessel, VP - IR at KLA]

Just thank you everybody for your time, for your interest in KLA. We appreciate it. We know it's a busy week of earnings, busy day. We'll be in touch as we go forward. Thank you. Bye bye.

[Rick Wallace, President, CEO & Director at KLA]

Goodbye.

Participants

Executives

• Kevin Kessel, VP - IR
• Rick Wallace, President, CEO & Director
• Bren Higgins, EVP & CFO

Analysts

• CJ Muse, Senior Managing Director at Cantor Fitzgerald
• Harlan Sur, ED - Equity Research at J.P. Morgan
• Vivek Arya, Managing Director at Bank of America
• Shane Brett, Equity Research Analyst at Morgan Stanley
• Charles Shi, MD - Senior Analyst at Needham & Company
• Thomas O'Malley, Director - Equity Research at Barclays
• Joe Quatrochi, Director & Equity Research Analyst at Wells Fargo
• Timothy Arcuri, Managing Director at UBS Group
• Brian Chin, Director at Stifel Financial Corp