KLA Corporation (KLAC) Morgan Stanley Technology, Media & Telecom Conference Call Transcript

Company and Industry Overview * Company: KLA Corporation (NASDAQ: KLAC) * Industry: Semiconductor Equipment and Materials * Event: Morgan Stanley Technology, Media & Telecom Conference Call, March 4, 2024 Key Points Corporate Priorities and Financial Targets * 2026 Financial Targets: Revenue of $38 billion and earnings per share of$ 38. * Revenue Growth: Semiconductor revenue growth expected to be 2x GDP, aligning with McKinsey's projection of $1 trillion in semiconductor revenue by 2030. * **Capital Intensity**: Capital intensity has been climbing since 2013-2014, with recent elevated levels due to investments in China. * **Market Mix**: Memory expected to grow at GDP plus rates, with logic foundry growing faster, resulting in a mix of approximately 60-70% logic foundry. * **Process Control**: Process control intensity is higher in logic and foundry than in memory, benefiting KLA's strong position in process control. * **Service Business**: Growing 12-14% in 2024, driven by high complexity, low redundancy, and long-term contracts. * **EPC Business**: Expected to grow about 10%, with Specialty Semiconductor being the strongest part of the business. * **Gross Margins and Operating Margins**: Gross margins in the low 60s, with a target of 63%. Operating margin target of 40-50% incremental. * **Capital Structure**: Actions to drive EPS level about 1.5x revenue growth rate, with 85% of cash flow returned to shareholders. Process Control Intensity and Growth Drivers * **Process Control Intensity**: Increased from low 6% in 2021 to high 7s in 2023, driven by adoption of leading-edge design rules and HBM. * **Growth Drivers**: Incremental scaling, changes in architecture, power distribution, and competitive dynamics in leading-edge technology. * **Optical Inspection**: Grew at about 1.7x the rate of WFE from 2019 to 2022, driven by adoption of EUV and scaling of devices. Semiconductor Equipment Market * **2023 WFE**: Estimated at$ 87-88 billion. * 2024 WFE: Expected to be flattish to slightly up in the high 80s. * Leading Edge: Expected to improve, driven by 3-nanometer activity. * Memory: Expected to grow modestly, mostly in DRAM, with HBM and advanced DRAM as drivers. * China: Expected to be flattish, with some inefficiency in investment and over time, some rationalization. Advanced Packaging * Growth Drivers: Rising complexity, pitch shrinking, and increased metrology requirements. * Revenue: Expected to grow at least 2x WFE growth rates, potentially reaching $1 billion by the back half of this decade. Memory * DRAM: Utilization has improved slightly, with core DRAM CapEx expected to remain healthy. * NAND: Spending has been low, with capacity investment expected to follow a similar path into next year. Services * Growth: Expected to grow 12-14% in 2024, driven by utilization improvement and tools coming off warranty. * Visibility: Good visibility into future revenue due to long-term contracts and high attach rates on services. Other Key Points * Supply Chain: Managed well through 2022, with strong partnerships with suppliers and investments in capacity. * Geopolitics: Not speculating on government actions, but acknowledging the desire for self-sufficiency in China and potential inefficiencies in investment. * High NA: Expected to drive scaling and adoption of EUV, benefiting KLA's high-end inspection capabilities. * Competitive Dynamics: Strong competitive dynamics in leading-edge technology, with multiple markets driving adoption of leading-edge nodes.