Lam Research Stock

Good day, and welcome to the Lam Research Corporation September 2026 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note, today's event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Lam Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. .

During today's call, we will share our overview on the business environment, and we'll review our financial results for the September 2026 quarter and our outlook for the December 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release and the accompanying presentation slides for today's call can be also found on the Investors section of the company's website.

Today's presentation and Q&A include forward-looking statements based on our current beliefs, expectations and assumptions. These statements are subject to risks and uncertainties, and actual results could differ materially from those expressed or implied in such statements.

For a discussion of factors that could cause actual results to differ materially, please refer to the risk factors in our most recently filed periodic reports on Form 10-K, on Form 10-Q and subsequent filings with the SEC and the cautionary statement in the accompanying presentation slides.

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 presentation slides. This call is scheduled to last until 3:00 p.m. 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.

Thanks, Ram, and thank you to everyone joining us today. In the September quarter, Lam again delivered record revenue and profitability, gross margin, operating margin and EPS all reached new highs with operating margin topping 40% for the first time. Our performance throughout the year reflects the broad strength of our product portfolio and a relentless focus on operational execution as AI continues to drive unprecedented semiconductor demand and increasing device complexity, including the midpoint of our December quarter guidance, we expect calendar year 2026 systems revenue to grow well over 40% year-on-year, rising deposition and etch intensity across all device types and advanced packaging solutions is continuing to drive greater opportunity for Lam.

Over the past few years, increasing device complexity and a push towards greater 3D scaling have driven a 4-point expansion of our Served Available Market, or SAM, as a percentage of WFE. When combined with share gains from products addressing this growing SAM, we expect 2026 to mark our third consecutive year of WFE outperformance.

For calendar year 2026, we expect WFE in the mid-$150 billion range. Our preliminary 2027 WFE outlook is for more than $200 billion of spending with percentage growth led by DRAM, followed by leading-edge foundry logic and NAND.

As we move into calendar year 2027, we see clean room space availability and supply chain constraints for certain components continuing to limit chip makers and equipment companies' ability to fully meet end demand. We are actively working with our suppliers to accelerate their capacity expansion plans and are confident Lam is well positioned to deliver on the strong demand we see ahead.

Underpinning our outlook for WFE growth is the continued rapid adoption of AI by enterprises and consumers. It is reported that average weekly token usage is up roughly 250 fold in the past 18 months. As AI moves increasingly towards autonomous Agentic workflows, demand for compute, memory and storage solutions continues to expand.

For example, in NAND, AI performance and economics are driving demand for multiple tiers of storage, each optimized for different workloads. QLC today provides cost-effective storage for rapidly growing AI data volumes. TLC storage is used as a high-bandwidth tier for context memory and KB cash workloads. And SLC class NAND is emerging for low latency, high-speed access in Agentic AI.

We believe adoption of an SLC storage tier could become a meaningful driver of NAND wafer capacity. Converting from TLC to SLC class devices reduces bits per device by roughly 3x. Said differently, for each percentage point mix shift of NAND bits to SLC class devices, approximately 2% more installed wafer capacity will be needed to support the same bit demand. Incremental growth in bit demand would further amplify wafer capacity requirements.

We expect all 3 storage tiers to grow, increasing the value and strategic importance of NAND. We believe Lam is best positioned to benefit from this inflection. We have the industry's largest installed base of NAND systems and a comprehensive product portfolio spanning all critical deposition and etch steps.

Any increase in NAND bit demand whether satisfied through installed base upgrades or capacity additions will generate additional need for Lam's tools and technology. Foundry logic and DRAM are seeing a similar device level evolution to satisfy AI's emerging performance requirements. From advanced patterning and backside power to next-generation packaging, we see billions of dollars of potential SAM expansion and share gain opportunities for Lam in the years ahead.

We are seeing the impact of our targeted investments in foundry logic and DRAM products in our calendar year 2026 results. These 2 market segments have accounted for approximately 80% of Lam's systems revenue growth year-to-date. A good example is our focus on advanced patterning requirements for foundry, logic and DRAM. With each technology node bringing more stringent EUV pattern fidelity and defectivity requirements, Lam's Acara etch, conductor etch and ether dry resist tools are being paired to deliver unprecedented scaling capability.

Importantly, these tools are also helping improve the productivity of DRAM scaling at a time when maximizing fab output is a critical priority for our customers. Multiple chipmakers are adopting Acara for its ability to etch very high aspect ratio features with exceptional profile control, while at the same time, delivering up to a 50% reduction in wafer-to-wafer and lot-to-lot variability and up to a 50% gain in wafer output per fab footprint.

Similarly, Lam's ether dry resist solution has demonstrated sub-10-nanometer resolution at the highest pattern density in fidelity with high NA EUV. It helps achieve this result while requiring 10% lower exposure dose, improving scanner productivity and reducing patterning cost per wafer. Ether solutions are already ramping in HBM high-volume manufacturing with low NA EUV, and we see additional insertion opportunities ahead across both DRAM and foundry logic customers.

As a result, we now expect cumulative EPA-related revenue to reach approximately $2.5 billion by the end of the decade, roughly $1 billion above our prior expectations. Backside Power is another example of where Lam's strength and deposition and etch is evident. Separating power and signal routing allows for thicker backside metallization to reduce resistance and improve power efficiency.

Implementation increases process complexity, driving the need for more deposition, plating and etch steps. As customers ramp backside power at 2-nanometer and below, our production-proven vector, Sabre and flex tools are well suited to the task. Vector provides industry-leading footprint density and wafer-to-wafer repeatability with its unique quad architecture.

Sabre is the global industry benchmark for electroplating through its high productivity and superior on-water performance. Flex delivers high throughput dielectric etch with low defect levels leveraging its differentiated small volume chamber design and confined plasma. New materials such as molybdenum are also being introduced to enable more efficient electrical connections between the backside and front side of the wafer.

For this emerging application, our Halo tool is gaining traction by enabling both plasma and thermal processes within a single chamber while delivering industry-leading productivity. We are gaining share in this expanding backside power SAM opportunity and recently secured tool of record wins for all 4 products at a leading customer.

In advanced packaging, our market-leading Syndion product is winning advanced logic and HPM TSV applications. Syndion's differentiated hardware design enables rapid process switching to deliver highly uniform TSB profiles, smooth sidewalls and high-volume productivity. Recently, we attained 4 new positions across multiple customers.

Our Stryker ALD product also achieved multiple TSV liner wins due to the film's superior step coverage and low etch rate. Beyond TSV applications, we secured additional Vector and TS 3D wins for high-energy bonding films and interdi gapfill applications by delivering lower defectivity for thick film deposition. With its high deposition in etch intensity, advanced packaging has become a major growth driver for Lam.

For next-generation AI and high-performance computing devices, customers are increasingly turning their sites towards panel-level packaging to scale manufacturing. Our panel level packaging portfolio continues to gain momentum across fan-out packaging, glass core substrates and emerging substrate and interposer architectures.

To date, we have shipped panel plating systems to more than 20 customers worldwide across panel sizes ranging from 300 by 300-millimeter to 600 by 600-millimeter. Customers continue to select our Kalisto platform for its differentiated colinearity and planting uniformity performance across bumps, pillars and redistribution layers.

Kalisto is also well positioned to benefit from increasing adoption of glass core substrates through emerging through glass via applications. Given our customer engagement, installed base growth and technology leadership, -- we expect to achieve panel-level packaging market share that surpasses the strong position we already hold in current wafer-level packaging. And finally, turning to CSBG. We are set to exit calendar year 2026 with solid momentum with annual revenue expected to grow more than 30% year-over-year. This is more than twice the rate of our long-term target set at our last Analyst Day.

Growth is broad-based across upgrades, spares and services supported by high fab utilization and customers' continued focus on installed base efficiency. The value we are delivering with Equipment Intelligence and Dextro cobots recently helped us secure performance-based service contracts with multiple memory manufacturers. We expect CSBG momentum to continue in calendar year 2027 with revenue growing over 15% year-over-year.

So to wrap up, -- we believe the industry is in the early stages of a multiyear investment cycle with customer visibility extending through 2028, increasing manufacturing complexity, new materials integration and advanced packaging are driving higher deposition and etch intensity across device segments. Our technology leadership, growing installed base and strategic investments in product innovation and manufacturing capacity position Lam to capitalize on these inflections and drive sustained outperformance. Thank you, and here is Doug.

Great. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We were pleased with our continued strong execution in the September quarter. resulting in our fifth consecutive quarter of record revenue as well as record gross margin, operating margin and earnings per share. September quarter revenue was $8.22 billion, which was up 22% sequentially and up 54% from the same period in 2025.

The deferred revenue balance at quarter end was $2.66 billion, which was an increase of $227 million from the June quarter. This grew primarily due to increased sales volume and it was partially offset by a decrease in customer down payments. From a market segment perspective, September quarter systems revenue in memory was 46%, which was consistent with the prior quarter.

On a dollar basis, this represented a record level for memory, and it was up 120% from the same period in 2025. Within memory, nonvolatile memory accounted for 26% of our systems revenue, up from the June quarter's level of 23%. On a dollar basis, NAND revenue increased approximately 40% sequentially as the industry continued spending on conversions to 256 layer and above class devices.

We are seeing initial spending on 384 layer class devices. DRAM revenue reached a record growing sequentially on a dollar basis, but down a little bit on a percentage basis from 23% of systems revenue in the June quarter to 20% in the September quarter. DRAM spending remained focused on technology additions and upgrades across the 1-alpha, 1-beta and 1-gamma nodes that is enabling DDR5, LPDDR5 and more importantly, hot bandwidth memory.

Foundry also achieved record revenue. Its strength -- excuse me, its share of systems revenue increased to 46% from 44% in the June quarter. Strength in the quarter was driven by investment in leach nodes, including advanced packaging as well as mature node spending in China. And finally, Logic and Other were 8% of our systems revenue in the September quarter, slightly down from the prior quarter's level of 10%.

Most of the spending here was targeted at leading-edge process nodes. Let me now discuss the regional composition of our total revenue. China contributed 35% of revenue, up from the June quarter level of 26%. We saw strong investments here by both domestic and multinational customers. In the December quarter, we expect China will represent a significantly lower percentage of our total revenue compared with the September quarter. Korea's contribution to revenue in the September quarter remained unchanged from the June quarter level at 20%.

The Taiwan region contributed 18% of revenue down from the June quarter at 27%. The Customer Support Business Group generated a fourth consecutive quarter of record revenues at nearly $2.5 billion in the September quarter. This was up slightly from the June quarter and 40% higher than the same period in 2025. Each component of CSBG remained strong with the prior quarter.

Turning to the gross margin performance. The September quarter came in at an all-time record of 52.4%, improving from the June quarter level of 52% due to favorable customer and product mix. Additionally, we continue to balance our cost and pricing postures. Operating expenses for the June quarter were $1 billion up from the prior quarter amount of $916 million. The increase was primarily driven by higher incentive compensation due to our increased profitability levels.

We are also investing incremental resources to support growing programs like Akara, Halo, panel form factors and Dextro. R&D accounted for nearly -- or excuse me, approximately 2/3 of our total operating expenses. Operating margin for the September quarter was another record at 40.2% compared to the June quarter level of 38.4%. This improvement reflected stronger gross margins and continuing operating leverage as our business scales.

The non-GAAP tax rate was 16.5% for the quarter compared to 11% in the June quarter and in line with our expectations. The increase was primarily driven by a higher U.S. tax rate on foreign earnings as well as expected shifts in the geographic mix of income. We expect the tax rate to remain in this range for the December quarter and likely beyond.

I'd encourage everyone to make sure they have their earnings models updated to this higher tax rate. Other income expense for the September quarter was approximately $16 million in income compared with $19 million in expense in the June quarter. The improvement in OI&E was due to foreign exchange fluctuations, higher interest income as well as favorability in our venture portfolio.

And as we've talked about in the past, you should expect to see some variability in OI&E quarter-to-quarter dictated by market factors. For the September quarter, diluted earnings per share were a record at $2.20. The diluted share count was roughly 1.26 billion shares, which was relatively unchanged with the June quarter.

Let me pivot to capital return. We allocated approximately $1 billion to share repurchases, and we paid $325 million in dividends in the September quarter. During the quarter, we entered into an accelerated share repurchase structure that will continue to execute in the December quarter. We returned approximately 41% of free cash flow in the quarter and 59% in the calendar year-to-date.

I would point out that we also used $750 million to pay down maturing debt during the year. Our long-term plans remain to return 85% of free cash flow to shareholders. We have $3 billion remaining on our Board-authorized share repurchase program. Our cash and short-term investments totaled $7.5 billion at the end of the September quarter, which was up from $5.6 billion at the end of the June quarter.

The factors behind the increase were cash from operating activities partly offset by our capital return activities as well as capital expenditure. The September quarter was also a record for our free cash flow, coming in at $3.24 billion in the quarter. And as I mentioned last quarter, we've been increasing our cash levels a little bit to support growing business volumes as well as capital investments in this growing demand environment.

Day sales outstanding were 63 days in the September quarter, a decrease from 72 days in the June quarter. Inventory at the September quarter end totaled $4.6 billion, which was an increase of $274 million from the June quarter as we're building inventory to meet the expected future demand for our products.

Nonetheless, inventory turns continued to strengthen to 3.4x versus 3x in the prior quarter. I would just mention this was the highest level of inventory turns in nearly 7 years. Our noncash expenses for the September quarter included approximately $115 million in equity compensation, $106 million in depreciation and $16 million for amortization.

Capital expenditures in the September quarter were $258 million, which was up from the June quarter at $189 million. Capital spending grew as we continue to increase our lab infrastructure and expand our manufacturing facilities globally. We ended the September quarter with approximately 24,300 regular full-time employees, which was a growth of approximately 1,900 people from the prior quarter.

Headcount increased primarily in our factory and field teams to support expanding manufacturing activities and growing tool installations. We also added head count in R&D. Now let's turn to our non-GAAP guidance for the December 2026 quarter. We're expecting revenue of $8.6 billion, plus or minus $400 million. I would mention that this revenue -- this revenue guide would have been a bit higher, if not for some near-term supply chain constraints that we are actively managing.

We're expecting gross margin of 52.5% plus or minus 1 percentage point. This is improving a little bit in spite of headwinds related to customer mix. We're expecting gross -- operating margin of 40.5%, plus or minus 1 percentage point; and finally, earnings per share of $2.33, plus or minus $0.15, based on a share count of approximately 1.253 billion shares.

So let me wrap up. We continue to execute our strategy for outperformance delivering another quarter of record revenue and profitability. Operating margin exceeded 40% for the first time in our history, and we're guiding for this to expand slightly. We're increasing R&D investment to strengthen the already strong product portfolio that we have. We're also investing in the infrastructure needed to support the growing demand we expect in the future.

These activities continue to deliver a return on invested capital level that is comfortably above the competition. Operator, that concludes our prepared remarks. Tim and I would like to open up the call for questions.

[Operator Instructions] Today's first question comes from Timothy Arcuri at UBS. Please go ahead.

Doug, I don't think I've ever seen a quarter where you grew systems 35% Q-on-Q. So kudos on that. You did talk about the near-term constraints I guess you can see that from payables. I think payables were up like $1.3 billion. So can you just give us a sense? Is it fair to say this is costing you like $300 million to $400 million. Is that like a reasonable number to assume that, that's costing you in the guidance for December. And do you get that back in March? So do you get back on this sort of 10% plus or minus systems growth in March, does that actually -- do you actually get that back?

Yes, Tim, that's a good question. I'm not going to put a specific number on it. In the script, I said it would have been a little bit higher. So it would have been a little bit higher. And yes, Tim, to the extent that it's something we would have shipped in December because of timing, we will ship that in the March quarter.

Okay, Doug. And then -- can you just talk about -- there was a call hosted by a big memory company today, and they were talking about 4 square. And they were saying that they're going to prioritize 3D DRAM rather than 4 square and your stock traded down, which was a little bit odd to me. It seems that people don't really understand what your position is there. So Tim, I wonder if maybe you can talk about that. Can you talk about how you do for -- in like a 3D world versus like a 4F square world? And sort of what you're seeing in terms of your customers' DRAM road maps? .

Sure. Obviously, we don't know exactly what the reaction was on why people would have reacted in that way because we've said for a long time that as all device architectures go 3D, etch and deposition intensity rises. Now I would say that in some ways, interestingly, the longer it takes to get there, the more we're seeing momentum for some of our other scaling activities.

And so we focused on this -- even in this call, advanced patterning, if you want to extend the current architecture in which devices are getting -- patterns are getting even smaller. That's why we're starting to see this uptick in costs like ether, processes like a car for conductor etch. The processes that are needed to etch and create those smaller structures. So I would say in the short term, etch and depth intensity arising -- and if really, we're making a leap break from 6 square to 3D DRAM, then etch and depth intensity is going to rise even faster even sooner than we would have thought, and that's a great thing.

And our next question comes from Melissa Weathers at Deutsche Bank.

I wanted to also ask on the supply constraints. I think you said you're working with your slicing to make sure some of those bottlenecks get resolved. Can you just give a little more color on what actions you're taking? Could you consider any co-investments or help on the capital side of those guys, just what needs to happen to relax those constraints. .

Listen Melissa. Yes, I mean we're always working with our supply chain to make sure they're ready for the demand environment that we see. But given how strong things have been, we're seeing a little bit of tightness. I'm not going to get into specifically where it is. except I would tell you that what we're managing, just like we always do, we'll continue to do that, but it just got a little bit tight in the quarter.

I have every expectation will effectively manage this as well as anybody in the industry will -- and yes, if we needed to make some level of investments, we'd be open to that. But frankly, a lot of our suppliers are well capitalized and can manage on their own from a financial standpoint. Tim, would you add anything?

No, I think that's correct. I mean for those of us who around during the COVID shortages, this is nothing like that. We learned a lot of lessons during that period. And in fact, just in the last 2 months, we've hosted a couple of big events with our global supply -- global suppliers to really lay out what we have in terms of expectations for growth into the next couple of years.

And where you can run into problems is -- within our own products, as we talked about etch and depth position intensity increasing in certain parts of our business, like we talked about advanced packaging, for instance, really being a major driver of growth for Lam. You can find certain suppliers that are seeing percentage growth of our demand to them rising even much faster than Lam itself is growing.

And so yes, I think we have been very clearly communicating that to those suppliers and really asking for transparency to the help they need to keep up with the pace that we're driving in the industry. And I think we'll be caught up very shortly.

And then on the NAND spending cycle and that upgrade opportunity that you guys have been talking about, you pulled it in last quarter. And then it's nice to hear about the 384 layer devices that I think are starting to -- you guys are shipping to. So -- can you update us on where you -- like what inning you think we're at in that NAND upgrade cycle? What trends are you seeing? And yes, maybe any forward-looking comments on the SLC and some of those new opportunities.

Yes. I think in terms -- there's still room to go on the upgrade cycle. And in fact, when you're in a period of high demand actually taking tools offline to do the upgrade, sometimes it's also a scheduling challenge for customers and for us. But I'd say that we're working our way through that, and we said that we would be finishing that in 2027. And so -- but we also pointed out that then you just roll to sort of the next upgrade cycle. And so remember, that upgrade was from the 128 layer to kind of into the 200 layer class devices.

And as you just mentioned, people are already moving into the 300 and 400 layer devices, we've been engaged on those in R&D for quite some time. But I think the real thing we wanted to point out today is that while we used to just talk about layer counts as the driver for Lam equipment demand and wafer capacity needs. Now you're really seeing this separation of storage tiers and each of the devices within NAND starting to be more specialized to different workloads within AI.

And that actually, just like it did in DRAM with HBM and the impact on bits that could be manufactured per wafer, -- you're starting to see the performance needs of AI start to create a need for higher performance, low-latency devices. And I think we've just set a customer took in some detail about that opportunity. I think that's going to drive NAND wafer capacity demand and intensity for Lam equipment.

And our next question today comes from Krish Sankar with TD Cowen .

I had 2 of them, Doug or Tim, when I look at your Q4 guide, I understand you're talking about mid $150 billion WFE, but the implied WFE for Q4 is like it was $180 billion or so. I'm just wondering, are there any episodic revenues in Q4? Or is some of the price increases that the semi front-end semi equipment companies are doing impacting Q4 and kind of making the WFE number larger. And then I have a quick follow-up. .

Yes, Krish. No, there's nothing unique or one-off or episodic to use your word in the December it's just consistent with customer demand, frankly. And like I alluded to, it would have been a little bit higher, if not for some of the supply chain constraints, but there's not anything one-off. .

Got it. Doug. And then I guess a quick follow-up. I think in your prepared comments, you mentioned China would be significantly lower in December versus September, kind of wondering, can you quantify that? How will the mix look like? Because it seems like September quarter was a surprise on the upside with both multinationals and domestics coming in.

Yes, Krish, it wasn't a surprise. It was exactly as expected. And yes, I mean the domestic customers attempt in September were strong, but so were the global multinationals. I expect it in December will be meaningfully down, driven by the domestic customers in China. I expect in the December quarter, the multinationals in China likely continue to be reasonably strong, but the percent of revenue in China will be meaningfully down in the December quarter. .

Next question comes from Harlan Sur at JPMorgan.

On CSBG, 36% growth for 9 months of this year, full year outlook greater than 30%, very, very strong. The growth tailwinds, I assume higher spares as customer utilizations are at record levels, higher sales of higher dollar value upgrades for NAND and maybe strength in Reliance, right, as the mature sectors of the markets start to come back.

And of course, you have your intelligent services offerings. Can you guys just rank order these growth drivers? And more importantly, on a year-over-year basis, how much higher are CSBG operating margins? I'm just wondering if mix and volume dynamics within CSBG are contributing to the strong overall operating margin profile?

Yes. I'll let Doug talk about the rank order in terms of financial impact in the short term. But if I were to rank order them in terms of my excitement, clearly, as we've talked about, we see equipment intelligence, the cobot driven maintenance, the performance-based service contracts we talked about as really kind of the new part of our CSBG business that's really catching on.

And we're in an environment right now where just as there was an earlier question about if people are trying to shrink devices even faster to get more bits or more performance out, that creates an intolerance to variability in the process, whether that's in the process control of the maintenance.

And that's exactly where equipment intelligence and cobots come into play. So we're seeing strong pull for that element, and that's something new for our CSBG business -- and so I'm very excited about that becoming a bigger growth driver for us than it has been in the past. And I'll let Doug talk about upgrade spares and everything else. .

Yes, Harlan, we don't specifically give you hard numbers on each of the individual components -- what I would tell you relative to strength of each of them, though, given how strong utilization in the industry spares and service are just coming along as you would expect. I've always said spares is the biggest individual component, and that continues to be true. But I'm not going to be specific on the other ones. What you alluded to is right, given where we add in the NAND conversion/upgrade cycle, that portion of the business continues to be strong.

And yes, Reliant did quite nicely last quarter, given the strength of investment in mature node spending. And I expect you'll see all of these trends continue into next year. .

Yes. I appreciate that. And then as a follow-up, the supply tightness in leading-edge foundry, logic is creating tightness in mature and specialty analog or microcontroller, foundry supply here is tightening very rapidly, right? Looks like mature foundry suppliers, internal IDM factories, they kind of all increasing capacity -- you just said that this is reflected in your Reliant business. But if I exclude China, are you anticipating this segment of your customer base to grow this year? .

Probably not in a meaningful way this year, Harlan. I do expect as we get into next year that mature node spending outside of China will be strong because of the dynamics you were just referring to. I'm not sure that it's really sticking out quite yet in 2026. .

Our next question today comes from Srini Pajjuri with RBC Capital Markets. .

Thank you. Tim, I'm looking at your systems business growth. I think last year, you were up 40%. And then this year, you're probably going to grow 45%, both well about the WFE growth. So looking out to next year, given your $200 billion plus outlook, roughly 30%, let's say, I suspect you expect to outgrow that market next year as well. Can you talk about what are the drivers? Is it driven by any particular end market like NAND or DRAM or any product line or anything else you can comment on would be helpful.

Yes. I guess I would -- at a very general level, I would say it's driven by the increase in deposition and etch intensity across all devices. And if there are a few things I'd point out just as maybe obvious trends in the market. Lam's exposure in the advanced packaging space is extremely high.

And I think advanced packaging continues to play an even more vital role in just about every device that's feeding into AI today. And so that's, I think, a great position. We will see outperformance and we talk even about that extending in the panel level. But it really is in every device. I mean you see NAND layers growing, you see new architectures coming demand.

You see -- we talked a little bit about the emergence of SLC Class NAND you're starting to hear from our customers. foundry/logic, we've talked about success and gate all around. We invested 4 or 5 years ago in an entire set of products focused on improving our position in foundry, logic and DRAM. And I commented on the fact that that today, those products are driving a significant portion of our growth here in the years in which foundry, logic and DRAM are leading the charge on growth. And so we're extremely happy with that.

NAND is yet to emerge as to its full potential from our perspective -- and I think you're starting to hear about it and the strategic role that can play in AI. And so I don't know, it's hard to project exactly. We'd love to see all the devices grow, but I think the single greatest theme is regardless of of which device we're talking about deposition that will play a greater role in 2027.

And if you think about -- we had this model, which was the $100 billion of AI CapEx being about $10 billion of WFE, but the important thing is that $10 billion next year, Lam's opportunity and that $10 billion would be even greater than it is this year because of the device evolution. And so I think that's intensity is just the way to think about Lam's opportunity.

Right. And then maybe on the gross margins, Doug, you're guiding actually a slight increase despite -- you highlighted some customer mix headwinds. I'm suspecting that's related to China. So I guess, on a normalized basis, as we look out to the next few quarters, once China normalizes, how should we think about gross margins? I mean, in the past, you did talk about some pricing actions. And of course, you have the cost and efficiency improvements as well. So just curious as to how we should think about gross margins as we go into next year. .

Yes. Listen, in the near term, Srini, I think you're going to be plus or minus the level that we're at. We did suggest over the next several years, we see an opportunity to expand gross margin in the mid-50s. So kind of triangulate yourself between these 2 points. But in the near term, it will bounce around generally where it is. And yes, the things that contributed to our very strong gross margin as well as our expectation of how we're going to drive improvement into the future, our new product introductions, right? .

We've got some very nice technically differentiated new products like Akara and Ether. We're excited about where that's all going to trend from a profitability standpoint. We've talked about our close to customer strategy relative to how we're manufacturing closer to where the fabs are and that's contributed and still have a little bit of use left to squeeze there. And then we've also talked about the fact that we're working on pricing. All of those things have contributed to getting us the all-time record level that we printed in the September quarter and levers we're going to keep trying to pull as we go into the future to get to that mid-50s that we've said we are going to drive towards.

Our next question today comes from Vivek Arya with Bank of America Securities. .

For the first one, if I look at last year, you were able to kind of consistently expand your WFE expectations, I think you started the year at mid-130s. Now it's like mid-150s. So I'm curious what helped you increase WFE expectations, right, last year? And then what are the constraints next year that you think can be resolved to help do better than the 30% or so industry growth. I know you mentioned some constraints in the near term. I'm curious if they are the same constraints that limit industry growth for next year or they are different. Just what can help you do better than this 30% industry WFE growth? .

Yes, Vivek, I'll start, and then I'll let Tim add. As we've walked through this year, you're absolutely right. We started mid-130s, and then we went to a little bit more than 140 and then a little more than $150 million and then we just took it to mid-150s. Basically, what we saw happening across all aspects of our customer base is everybody squeezed a little more out of the clean rooms that they had and/or pulled projects and a little bit quicker than maybe they originally intended.

That's generally what happened. And frankly, we did exactly the same thing. And with the more than 200 number, we're giving you our initial starting point more than 200. We normally don't give you this much specificity this early in the year, and we'll give you a sharper pencil on that when we get to the earnings call next quarter. .

Got it. And for my follow-up, Doug, you mentioned something about an accelerated repurchase plan. I think you can all guess what that is due to, but would help to hear from you also and if you could help give some sense of what the magnitude is, how long you plan to continue with? I know you mentioned you have $3 billion left in the buyback. But just how much is the ASR component, how long it continues?

Yes. I mean, the way these accelerated share repurchase structures work is you enter into them, you get some shares upfront, and then they execute over time depending on where the share price is and volatility and things like that. I'm not going to disclose actually the start or end date because there's ranges around it. I don't like people to know what we do and how we do it, except I will reinforce for you. It's going to continue to execute in December. .

And then we will likely be doing other things in the market relative to the buyback, right? Our medium long-term goals remained unchanged, which is to return 85% of free cash flow to shareholders.

And our next question today comes from Atif Malik with Citi. .

The first 1 for Tim. Tim, I thought your panel-level packaging comments are extremely bullish you're talking about a share that will exceed the wafer-level packaging. Can you just kind of double click in terms of the industry ramp on panel level packaging and your products are the parts the same as wafer level like Sabre that will drive this growth? .

Yes. I mean at a fundamental level, they're similar. I mean, I think part of our optimism in this space is, one, it makes sense. I mean, obviously, we talked on the last -- I think, on the last earnings call about how packages themselves are getting larger, which, in many cases, is -- they're too big for wafer-level packaging.

And so panels make sense as you try to assemble bigger and bigger system-level solutions. So we saw that quite a while ago, and we've been investing in panel for several years. And I would say we're still going in the very, very early stages. I mean it's -- wafer level packaging is the predominant method -- but as we talked about the shipments to more than 20 customers, you can think of those as really the planting the seeds for an industry that I think is going to ultimately assume a fair bit of the packaging work for the industry.

The processes that we talked about, we don't call it Sabre in this case, I mean, but there's a plating aspect of this and some other processes that I think we'll do extremely well in within panel level.

Great. And then Doug, on the $200 billion plus basis type equipment outlook for next year, your rank orders DRAM, foundry/logic and NAND, which is the same as 90 days ago. But has the gap between DRAM and foundry/logic expectations narrowed given some of the announcements on the new logic fabs from a foundry and tariff fab like?

It, they really haven't. And as you might expect, all of these projects perhaps that people are now publicly hearing about, we knew about in advance of that. So it really hasn't changed much. .

Our next question today comes from Jim Schneider at Goldman Sachs.

I was wondering as you look into 2027, can you maybe frame for us some of the moving pieces that could adjust the WFE outlook higher or lower? How much of it really is your customers' individual spending plans for the different technology or product areas versus just the general availability of clean room space overall? .

Yes, Jim, I'll start, and then I'll let Tim add. When we look into next year, we see 10 new Tier 1 fabs coming online between the beginning of the year and the end of the year and they will layer in over time. So obviously, that's a contributor. This year has been primarily clean room constrained. In that in, you see, like we said, some emerging supply chain constraints that we're confident we're going to be able to work through effectively, but the whole industry is going to have to work through very similar things. .

And so all this at the end of the day has to get balanced. Every equipment company needs to be able to supply things. clean rooms need to come on, on schedule. People need to hire and train to make sure they're already -- the industry is good at doing this, and we're great at doing it. But all of those things have to come into play when you're thinking about what the next year is going to look like. .

Yes. And I think in my prepared remarks, I talked about the fact that we have visibility through 2028. That's really from the demand side. And so I think that where we're saying it might just be a little bit early to give such a precise number on WFE is simply because we think by the January call, which is the normal time we would get that level of detail. We'll have a better view of clean room schedules of supply chain constraints and really be able to hone in on that.

But it's -- those are the things we're looking at. And just as this year, we were able to work through those. And I think as we get closer, we get a better sense for how the industry is responding. .

Our next question comes from Stacy Rasgon with Bernstein Research. .

For the first one, like I understand that this more than $200 billion WFE next year is a constrained number -- do you guys have a point of view on what that number would be if it was not constrained, if clean rooms were available. Supply chain was not as tight as it is. Where do you think -- I guess what I imagine where do you think the demand for WFE in 2027 versus the supply number that you've given? .

Listen, Stacy, you always ask these interesting questions -- you know we're not going to add. But I love the questions nonetheless. Listen, things are going to continue to be constrained, we think, in the next year by the things that we described. I'm not going to put a number on what the unconstrained demand would be. We probably not probably. It would be higher, but I'm not going to give you a precise number. And like I said, we'll fine-tune what we think the number is and give you a little more specificity on the next quarter call also. .

Okay. That's helpful. For my follow-up, I focus on the NAND upgrades relative to the services. It sounded like upgrades were strong. I don't know if that meant that they grew sequence or not. I assume they did because the NAND revenues grew a bunch, but the the CSBG revenues were kind of flattish, and I thought the upgrades were in CSBG. So if that's the case, I guess what I'm asking is, did upgrades drive the NAND growth? And if they did, what else was going on in CSBG to absorb the growth such that the overall was flat. .

Yes. Listen, it's Stacy. Upgrades are a part of NAND, also CSBG, but NAND also, when you go through these conversions, you need to buy new equipment also. So obviously, there was a contribution in demand spending from new equipment also. .

Was it bigger than the upgrade piece -- it sounds like it was. .

Both were meaningful contributors.

And our next question today comes from Blayne Curtis at Jefferies. .

I actually want to ask on the NAND side. You mentioned SLC. That could be a big transition. Is that something you're seeing from customers? Or is that still a potential transition? .

I think it's something that you're starting to hear from customers talk about. I mean, fundamentally, this idea of customizing memory and storage hierarchy to the different workloads, I think, is now pretty well understood. And so I think that this is emerging as 1 of the potential solutions for low latency NAND access.

And so I think if you go look just in the last recent days and weeks, there's been discussion with SLC plan, NAND emerging as part of that stack. A little bit longer. I mean for a little bit longer time, there's been discussion also things like high bandwidth flash and the role it can play.

And so we're really starting to see NAND move from sort of a singular application. We've always thought of to now 1 in which perhaps the device performances themselves will need to be customized. And that will have implications for us, but it will also -- from a process perspective, but really, what we were highlighting here was the impact it would have on wafer capacity needs and therefore, perhaps an uptick in NAND equipment demand.

And then I want to ask on advanced packaging. I think you said last time it would grow over 70% for the calendar year. I was curious what the update is. And then when you look at it's probably the smaller end to mention it, but in terms of that $200 billion outlook, like any thoughts on advanced packaging growth next year? .

Yes. Blayne, 70% for this year is still the right number, and I would be stunned if advanced packaging didn't grow nicely next year. .

Next question comes from Shane Brett at Morgan Stanley. .

So my first question is on foundry/logic. At your 2025 Investor Day, you talked about your foundry logic SAM per wafer increasing 2x. Just how far are we towards that 2x with the shift from 3-nanometer, 2-nanometer or rephrase that, how high did our SAM grow from 3-nanometer nanometer? And do you think your share gains would accelerate with the transition to 1.4.

Yes. That was a -- that 2x was a multigenerational shift. And so it's a little bit hard to put exactly where we are in that, maybe halfway through, if I thought about that road map that we gave there. But really, it's -- as we've moved forward, though, we've seen just new emerging applications. I talked about a couple of them today.

Clearly, advanced patterning itself is becoming ever more critical. We talked about the growth in ether. We talked about the use of Acara for conductor etch backside power really starting to get a lot more attention being a very etch and deposition intensive application we just see a number of elements of that improvement. And then I commented about how excited I was about at packaging. I mean it's advanced packaging is playing a huge role within foundry/logic and our exposure to the WFE there. And so I just think foundry/logic is turning into a good story.

The thing we've highlighted over the last couple of calls, though, just to remind you, is the role we play and gate all around our strength in ALD in our strength in surface treatment. Those are areas where I think even at the Investor Day, we might not have realized just how strong the uptake would be for things like the Argos surface treatment tool. So I feel like the story just kind of keeps getting better and better, the more complex the devices get across all 3 device types, foundry/logic DRAM.

Got it. And for my follow-up, it will be on advanced packaging. So at SEMICON West, 1 of your colleagues had a great presentation on breaking the integration well and advanced packaging for the AIR with 1 of the highlights being key challenges to hybrid bonding adoption at scale. Just how does Lam enable hybrid bonding and is more hybrid bonding better or worse for our Advanced Packaging share? .

Well, I think that the -- we participate in the elements of the process that help enable hybrid bonding. And so obviously, as a deposition in X company, we don't do the bonding ourselves, but we talked about a number of films, whether it's in the dielectric space or in the metal space that ultimately play an important role in achieving successful hybrid bonding.

And so there is an opportunity for Lam through that transition. But I think that overall, look, the reality is success in advanced packaging, whatever version it is, will lead to greater adoption of advanced packaging. And ultimately, given our very high share position, that's a good thing for us. Hybrid bonding, you know it's a very etching deposition-intensive process compared to other parts of the semiconductor manufacturing process itself.

And our next question comes from Vijay Rakesh with Mizuho.

Sorry about that. So Tim, had some interesting comments on the NAND side. You mentioned every 1% move to SLC drives about -- requires about 2% increase in wafer capacity. So as you look at next year, with the move to SLC and potentially some HBF, any thoughts on how you think what percent of the market moves to SLC?Is it like 5%? Or how would you see that? .

I think it's too early for us to make any comment on that. And it would be probably something our customers could -- should actually be commenting on. But what you can rest assured is that the -- in that sense, the intensity of Lam equipment and manufacturing those devices and those wafers would go up. .

Got it. And then a quick follow-up. On the advanced packaging side, you mentioned, obviously, you have -- there's a whole Copas and EMT coming -- and I guess, Lam has huge opportunities on the metalization preclean PSV, et cetera. Just wondering if it's a way to size that opportunity as you have done before for every 100,000 wafers of EP or Copas, -- like how would you size that opportunity for Lam? .

Yes. I think maybe we'll take that as an action for work just being done, maybe sizing -- we're not prepared to do that today. .

Operator, we're going to take 1 more question. .

Absolutely. And our final question today comes from Brian Chin at Stifel.

A few quick questions here. Maybe, Doug, firstly, days of inventory kind of running a little bit over maybe a quarter at the moment, clearly has drawn down. You said the turns have been really strong. Ideally, where would you want that to be? .

Yes. Listen, we're super comfortable where it is right now. As the company scales up, you do get some level of efficiency Offsetting that, though, right now, we are trying to build inventory in anticipation of the growing demand we see into the next year. But I think we collectively feel pretty good about where we're at at 3.4x. .

Okay. Great. Maybe just the last question here. Is the $1 billion increase in your drivers this revenue outlook reflective more of adding logic and DRAM customers in terms of the adoption of that platform? Or is it more towards existing customers pulling forward introduction of the timing of Drive Resist .

I think it's a little bit of both. I mean there have been some additional customer adoptions, but really, it is -- as you really become PGR for something like we mentioned, HBM manufacturing and the volumes are growing there. The number of tools and therefore, the business just continues to expand. And so we feel like we're positioned in production for some of the fast-growing parts of the market, and that's why we were able to take the number up .

Thanks, Brian. Listen, thanks, everybody, for joining the call today. we're really excited about where the business is performing. We're really excited about what things look like into the next year. And I think we're probably the most excited about a third consecutive year of outperformance and an expectation that we're going to continue to drive those things into the next calendar year. So I know we'll see a lot of you guys in NDRs and conferences in the coming quarter, and we look forward to seeing you .

Thanks for joining the call. .

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

All right. It looks like we're starting time, but I don't have any sell-side support here. So Anybody have any questions in the room? Listen, I know Jim is probably on his way over. I'll start with everybody, please have a look at the safe harbor language that's up on the screen right now. By the way, I do not intend to make any new statements today. So I don't think this is all that important. But to the extent that I do talk about any forward-looking statements, it's protected by the safe harbor language that you see on the screen that you will also find on the Investor Relations portion of our website. So I don't know where Jim Schneider is, Jim is coming.

Probably coming from NVIDIA.

Yes. He's probably on his way Okay. I'm going to do an audible. Anybody in the room have any questions you'd like to ask me to get us going. Oh, there's Jim. There you go. I know you're moving from room to room, Jim. I understand.

I got done with the safe harbor. How are you?

Very well. Okay. Sorry to be late. Welcome, everybody. I think you've done the intro, the safe harbor? Okay. Excellent. So thanks everybody, Jim Schneider from Goldman Sachs. Thank you for being here guys.

Well, thanks for having us.

Doug, I want to maybe start off from the strategic perspective for a second. What are the one or two most critical imperatives you drive in the company to over the next 12 to 18 months? And then what's going to dictate your success in achieving those kind of both near and medium term?

Yes. No, that's a great spot to start. Tim and I and the leadership team at Lam, I think right now, we're very focused on customers for obvious reasons, right? Demand is extremely strong. It's grown quite quickly. And honestly, customers want things sooner than we can get it for them. Things are relatively tight. So A lot of the focus right now, and it's maybe not strategic Jim, it's more tactical and operational is making sure we can take care of customer commitments, on-time delivery, managing lead times, managing quality -- honestly, hiring. We're hiring tons of people right now because the business is so strong. There's lots of new fabs and new locations all over the world that we need to put new teams in place. So that's a key focus.

And frankly, in an environment like this, it's critically important to manage operational execution -- and -- but also not lose sight of the long term, not lose sight of the product delivery road map, not lose sight of the R&D road map, not lose sight of the schedules that we have for new products that are not yet in customers' hands because you got to manage that and manage the long term and not just get myopically focused on the short term.

So there's lots of stuff going on, a lot of which is operational, but it's also make sure the product road map continues to be executed the way it needs to be executed.

Maybe can you help us frame the level that you see in terms of demand and visibility either in terms of the duration of forecast you're seeing or in terms of order backlog?

Maybe let me describe a little bit of how things are working with customers and then how that shows up relative to how we're managing the company. I think that will provide color for everybody that hopefully will be illustrative. Listen, things are sold out, right? The industry just fundamentally sold out. The industry is constrained right now by clean room availability. And there's tons of new clean room coming online between now and the end of next year and beyond, frankly, we've talked about -- when you look at our Tier 1 customers, read that to be the biggest customers, Jim. We see 8 to 10 new clean rooms coming online between now and the end of next year.

And so right now, the conversation with every single customer is, tell us what you need today. Tell us what you need over the next year and tell us where you think you're going beyond that. I wouldn't tell you that, that doesn't always happen. It does. But frankly, I would tell you that the intensity of those conversations, the conviction of those conversations, I've never seen stronger in my time in the industry. So I think that's important. We need to know what the customers need. We need to know when they need it, so that we can be prepared. We don't want to be the constraining item and our objective is not to be. And so the customer doesn't want us to be either. So -- that's important to understand.

That's an important starting point for us then to step back and say, okay, where do we need to be with our own bricks and mortar and hiring plans to manufacture tools as well as to do installation and warranty work in all of these new locations. So that's important for us. And then we have to take that and propagate it back to our own supply chain to make sure they're prepared as well. Everybody understands demand is very, very strong right now. And almost everybody is willing to make the investments needed but everybody needs to know to what degree to what magnitude. So that's kind of what's happening right now. Hopefully, that maybe didn't directly answer your question, but gives you color around, I think, what you were getting at, Jim.

Never been better.

I haven't seen it this strong and I've been around for a while.

Yes. And to the point, you have been around for a while, you've seen prior cycles. So is there anything that kind of like gives you any warning signs or a sense of kind of like concern that we're potentially in a risky situation in terms of overbuilding the industry or anything like that?

Listen, this industry has always had a level of a cycle to it. That's always in the back of everybody's mind right now, but it's pretty far in the back right now. I think I'm more concerned for the company and the leadership is more concerned about missing the upside. I don't want to tell you, we've forgotten how to think about, hey, if a downturn comes, what we're going to do. We've developed an operating model over 40 years, where we know how to run the company when and if that happens. But that's not the primary concern right now.

Yes. Now I mean to that point, on sustainability, your customers are incredibly profitable right now, more so than I've ever seen in my career.

Yes. Sure. I agree. Probably more than they've ever been.

Exactly. Like some of your customers' customers who actually drive the ultimate spending on those chips. They're spending well over $1 trillion per year run rate, and that appears to be moving a lot higher. So -- but many of those companies even are tapping capital markets just sustain the current levels of CapEx. So how do you think about the ultimate returns of AI as you see them for the supply chain? And again, kind of like any systematic risk that you worry about?

Yes. I mean I think everybody tries to understand that. When I step back and generically look at what is going on in the industry, I think you see these large levels of investment because the end customer ultimately sees a real opportunity to create barriers to entry around what they're doing. And that requires investment in compute infrastructure, and that will be fundamentally differentiating. And so the investments I look at in trying to step back and think about, well, if I was running those companies, if I was the CFO of those companies would I be doing anything different? And the absolute answer is no. I'd be making all those same investments. I'd be doing all the same things because they are fundamentally creating barriers to entry around what the future is going to look like, I think.

Then when I abstract and look at what I see us at Lam doing and frankly, probably what all of us in this room are doing with AI, it is fundamentally changing everything you do. The value is obvious when you actually look at things. And you may ask me about like what are you doing with AI at Lam, I'm happy to get into that.

I will.

But it is very differentiating. And if you're not doing it, you're going to be at a fundamental competitive disadvantage to someone that is. And so that -- I just see immense value from all of this opportunity to do things differently and do it better, which I think is important at the end of the day. There's clear value here.

Yes. Now to that point, I'm asking -- I mean this conference is permeated by discussions around AI. I'm asking all the companies that I talked to, what are you doing internally at your company to leverage AI? And where does that mean? Is it just a cost-saving thing? Or is it actually something that's going to drive revenue? And maybe talk a little bit about that?

I think it's both, Jim, at the end of the day. And listen, we're doing tons of things. I'd spend all the rest of the time talking about all of it if we got into it. Maybe I'll select a couple of things just to give you an indicative of what we're doing. One of the really interesting things, I think, where the company is providing AI capability for the engineering community that's in the field. So what am I talking about? We hire tons of engineers that have to support our customers. They have to go in and install our equipment. They have to come in and troubleshoot the equipment. They need to provide warranty services. They need to help just do fundamental service.

Oftentimes -- listen, and we hire the best and the brightest. But if you're a new engineer coming in and doing this work, you're not really good at it on day 1, right? There's an experiential component of -- you just have to have seen certain things. And historically, how that would show up as new engineer goes into the customer's fab, sees a problem, doesn't -- maybe has a couple of ideas, tries some things, can't fix the problem, then has to come back out of the fab, start making phone calls, has to start talking to his or her manager and trying to figure out, okay, what do I need to do to fix this? And then go back into the fab, try something out and hopefully fix it, but if not, this will iterate.

Every time we ever solve a problem, we document how we solve it. We have 30-plus years of history of all this data of every time we've troubleshot something, what did we do? Well, we're training AI models on this to make the field service engineer more productive. The uptake of this -- when I -- when we look at like who's using this, it's 2/3 of the engineering community in the field. So obviously, there's huge value or you wouldn't see 2/3 of the engineering community using it. This is one example, and there's many more of things like this, but this is a really big opportunity for us, I think, to drive productivity, to drive time to solution and frankly, to begin to deliver new advanced services using this kind of capability.

So that's an example, Jim. It's a huge opportunity, I think, for us. And there's many more like that as well.

Yes. Excellent. Okay. I want to ask about some of the regional dynamics of your business, starting with the U.S. I mean, obviously, the U.S. has lagged the world in semi production for the last 20-plus years. It seems that, that could be changing a little bit with TSMC in Arizona, Samsung Foundry and now Intel. Maybe speak to a little bit about your position in the U.S. market, if you can dimensionalize it that way. And does that reflect maybe just the broad global share you have among your largest customers? Or are there specific focus points you have among those kind of capacity customers in the U.S. that gives you a bit of an advantage.

Yes. Our strategy is to try to do what we do and do it being close to customer because our point of view on that is you can do it more effectively and better if you're near where the customer is doing what they do. And so when you think about the fact that, yes, there's a lot of new fab invested in the United States. We are making investments in all of those locations to make sure we've got the engineering capability for what the customer needs in those locations. So that's one.

You probably also saw Jim, I think it was -- it was 2 weeks ago, we announced a large new lab investment in Oregon, right, which is a key part of $3 billion investment that we plan to do in lab and engineering capability. We do a lot of the innovation at the company here in the United States. The company is headquartered, not far from here in Fremont, California. But we also have a large engineering organization in Oregon. And so when you think about all that innovation, we're making large investments because that's where we do what we do. Now we do it elsewhere also, but the biggest lab investments that we're making in the company are frankly, in the United States.

So you got to support the customer, you got to support the customer where the customer is and the fact that a lot of our customers are doing more and more in the United States means so are we.

Yes. So do you think your share of U.S. capacity can actually be higher than it is globally?

It's consistent.

Consistent, Okay.

It's not really any different. If you think about a large customer like TSMC, what they're doing in Arizona, if they weren't doing there, they would have probably been doing it in Taiwan, and we support them the same no matter where they are.

Yes. There's a few unconventional customers that are coming to market now, notably SpaceX with Terafab. Maybe talk about sort of like do you have a technical collaboration with them? And sort of like what do you see the opportunity for that project in general being for the industry or for you?

Yes. Listen, there's a potential large amount of demand that shows up there. We are deeply engaged already with that specific customer. I have to be careful not talking too much about any one customer, but the engagement there is already in place and will be. And also, when you think about a new type customer, the opportunity to do more and provide even more for a customer like that is very high, and we're making sure we're very, very focused on it, Jim.

Yes. Okay. Excellent. China has been kind of a point of controversy for years going back now. I mean, I think I want to ask about 2 kind of elements of it. One is -- just in terms of the CapEx opportunity you see there, I mean, clearly, China it feels like it's now spending more again from a CapEx perspective, China native-based semiconductor companies. Now there's been -- the export controls have been a challenge for you in terms of who you can play with.

Exactly. So I guess the first question I had is just sort of like it seems like you can now look like that China is going to grow a little bit for you. Do you think that's sustainable? And then maybe can you talk about just kind of the competitive landscape from China-based equipment companies as you see it and their ability to kind of in any way, threaten your position in the customers you serve, you can serve via export controls.

So I think the first -- first, let me describe what we see happening in China relative to WFE. It's slightly up. When you think about, okay, it's slightly up, that's good, right? It's good to have things growing. Everything outside of that region of the world is growing a whole lot more. And so I think when you listen to all of us in the equipment space described, China as a percent of overall spending is going to come down because the significant growth you see is happening outside of China. So that's one thing to understand. You're right, there's a whole bunch of customers in certain technologies in China that we can't support because of regulations or restrictions.

That is what it is. So there's a set of customers that are making investments that we can't sell to any longer. When you think about, okay, what does that mean for the local Chinese equipment industry. Well, they have a captive set of customers that, frankly, are making investments that they uniquely are able to supply to. So they're doing well in those areas for obvious reasons, we can't sell.

I would tell you, in the customer base where we can sell, our market share continues to be very high in China. But you comply with the rules and regulations and just kind of is what it is.

Yes, I understand. So maybe you want to talk about the end markets in your business segments as well. CSBG is kind of a key driver for you.

I love CSBG.

I know, I know. When you think about the moving pieces in that business, what continues to kind of come in directionally above or below your expectations? And then sort of going forward, where do you think growth rates are going to head as we go into 2027?

Yes. Let me unpack CSBG. It's a big room here and there may be some people here that haven't heard us talk about it. So first, let me describe what is CSBG? Customer Support Business Group is the acronym. This is the business we have that comes from just having a very large and growing installed base. There's 4 components that show up for us in CSBG: Spare parts, service, equipment upgrades, and then we call it the Reliant product line. It's the mature node investments that occur in tools that have been around for a while. So if you think about it, all of those have different characteristics.

We just finished the third consecutive record quarter of revenue in CSBG, nearly $2.5 billion for us driven by all of those things. So if you think about what's happening right now and how that might continue to show up over the next several years, spares and service benefit when utilization is really high. Obviously, utilization is really high in the industry right now. So spares is doing extraordinarily well and so is service. Because the more you run the equipment, the more you need to replace spares and the more you need to service the installed base. So that's part of what's happening in CSBG. Those 2 components of CSBG are just doing really well because utilization is high.

The third is upgrades. So obviously, when you think about what's happening across the industry, there's a lot of conversions happening, especially in the NAND segment of the business. And so when you look at that, that aspect of the business is doing extremely well because of what's happening there. And then the Reliant product line is more tied to mature node investment, which is doing okay, right? Think about what's happening in analog and industrial and a little bit of the mature set of customers in China. So all of those things contribute to the fact that CSBG is just doing really, really well right now.

I have a hard time envisioning that not continuing for the foreseeable future.

Okay. You have a very, very strong position in etch and also in deposition. Is there any one of these or maybe a specific product area that you see as kind of being particularly exciting over the next say, 2 to 3 years?

I've got Ram up here with me. I'm going to let Ram chime in on this and then I'll layer on afterwards. Go ahead, Ram.

Yes. No, fundamentally, I know -- this kind of ties into some of your earlier question. I think the biggest debate with investors today is, hey, how much better can things get? What's happening in semi cap equipment, right? And there's everyday noise and today, whatever, maybe, memory. But you have to take a step back and look. Fundamentally, Lam is back to some of the faster-growing segments within WFE, right? We are in the etch and deposition market. When we take a step back and look at the road maps that are happening, the inflections that are happening in the next several years, they are very etch and deposition conducive.

And the company has proactively invested in a forward-looking product portfolio, right? Even in the downturn, there was a heavy R&D investment. So we have talked about multiple different products across the end markets like the Akara conductor etch tool, or Vantex. You've talked about the highest -- high energy in a chamber for that with cryo and then several of the ALD products. And then more recently, we have talked about things that we are doing in advanced packaging.

So it's not just 1 or 2 products. It's about the elements of etch and deposition intensity for the vertical inflections and within that, having a suite of products that are really addressing the key inflection challenges for our customers, right? If you take a step back and the concern is like what is the cost of missing a product cycle for our customers, say, for example, if an HBM cycle is a little delayed a little bit. It's enormous because the scale of AI is so much that they cannot afford to miss a product cycle. So things that we do with Akara, for example, with the DirectDrive, things we do with what we bring in terms of capabilities for Vantex. Those are all things that we feel very excited about in terms of both the scale of WFE and the ability for Lam to gain share within that.

Great. I think relative to those couple of markets, I mean, people think about the memory cycle that we're in. I think a lot of investors classically think of you as being exposed to a lot of NAND flash spending but DRAM, in fact, has been very, very strong growth driver for the company.

So it was the leading foundry/logic.

And leading foundry/logic too. But I did want to maybe ask about memory and like sort of like you see it like going into 2027, it feels like a lot of what's driving the market is both capacity expansion in DRAM and also a lot of spending in leading-edge foundry/logic. So maybe if you think about those 2 in particular, like which one do you think is going to be stronger and how much capacity you think we've actually seen in DRAM.

Yes. When you think about those 2 things, first, think about what's driving this, AI compute, right? We've gone from training to inference to agentic to eventually physical AI showing up. All of that needs the most leading-edge silicon that you can get. That's what's driving investment in leading-edge foundry and DRAM. And when you think about what's happening there to what Ram was just talking about things are inflecting in the third dimension. What am I talking about? Gate-all-around is a 3D architecture. We do extremely well depositing material using ALD approaches, selectively etching the structure of the gate. We have described that as for every 100,000 wafer starts of capacity that gets put in place , our SAM expands by $1 billion.

Similarly, you've got backside power coming, right? It's the same quantification roughly speaking. So similar, right? That's also a 3D structure, $1 billion incremental SAM for every 100,000 wafer starts to shows up there. Advanced packaging is a 3D structure, where we do extraordinarily well in the through-silicon via process. We call it the drill and fill, right? We do the silicon etching and the copper electroplating. That's a 3D structure. And you look at what's happening in DRAM, similarly, you've got an evolution of the process, but you also have high-bandwidth memory showing up. That also uses through-silicon via the strength that we have shows up there as well.

So when you put all of those things together and look at the record numbers we've been putting up in leading-edge foundry as well as DRAM. It's being driven by the architectural innovations that are happening and the 3D evolution of that layer on top of that, the strength of the product portfolio right now, things Ram just talked about, specifically Akara, our new conductor etch platform is a really, really good product. And so customer pull on that adds on top of that, that's what's happening, Jim.

Longer term, we have more on the dry photoresist.

There's more coming. So this isn't done. You may remember 1.5 years ago at our last formal Investor Day, we said, hey, right now, we address nominally low 30% of overall WFE. We see an ability for that to go into the high 30% because of these things I was just rambling on about frankly, we've made really strong progress on that already beyond where we expected we would be. It's going to continue.

Yes. Carry handicap whether foundry or DRAM goes faster for you next year?

Both are going to grow quite well. And so as NAND.

Okay. Yes. And so maybe a follow-up on -- do you want to say a.

Yes. Basically, the way we had articulated from a WFE point of view, for 2026, we ranked for you guys that it's by far led by DRAM, WFE followed by leading-edge foundry/logic and NAND. We see a similar setup in terms of ranking. And what we have said on the earnings call is leading-edge foundry/logic -- and it's still led by DRAM next year, but the gap between leading-edge foundry/logic WFE spend and DRAM is probably a little closer next year. Leading-edge foundry/logic is very strong next year.

How would you handicap the ability for the industry to actually accelerate growth next year?

Listen, I think we hang our hat on what I referred to earlier, we see 8 to 10 new Tier 1 fab showing up between now and the end of next year. Those things wouldn't be happening if the demand wasn't there and if the intention wasn't to equip those fabs. So that's the best substantiation I can provide to what we're talking about. Strong as well. It seems pretty good.

And then last part of question on NAND. I mean, we sort of left that out, but I think it's pretty clear that we're moving from a place where it's mostly been upgrade driven to a place where we could see some greenfield in the future. So how do you think about the transition from upgrade driven business to greenfield business over time?

Listen, the way I would want people to think about it. I'll take you back to things that we've said, just to frame it for you. I'll go back to that Investor Day 1.5 years ago. We described the point of view that the industry would go through this conversion process and spend $40 billion, we described it as over several years. More recently that $40 billion is still the right number, but it's going to happen by the end of next year. At which point we believe there will be a higher level of new wafer capacity put in place. And you've seen several of our customers announced new fabs that are intended to be NAND investments.

Now I would point out to you, I understand there is some new wafer capacity that's showing up this year. But when you go through a conversion cycle, you actually lose raw wafer capacity. And so how that is showing up right now is from the peak wafer capacity to where we think it shows up at the end of this year, it's down 20% from a wafer start standpoint. At some point, you'll need to supplement that with some new wafers.

Okay. Then I want to close on a couple of financial questions for you. I think one thing the -- I mean, I'm sure you met with investors today, people are very focused on the industry's ability to take price or to at least price for value. That's historically been difficult because of the concentration of customers you have. But maybe speak to Lam's ability to take price, both on a like-for-like basis, shorter term as well as a longer-term basis with new products.

I guess I'm going to answer a slightly different question, Jim, but I'll get to what you're asking about. Listen, we just delivered the highest gross margin in 20 years at Lam Research, and we just printed 52% gross margin and guided to 52% again and said, "Hey, we're kind of in this 51% to 52% range." On the call, we also said, "hey, I need to update the long-term profitability objectives for the company," and said we see an ability to move this into the middle 50s from a gross margin standpoint. So how are we doing that? I guess I would point to 3 things. One, we've already talked about some of the new products coming out. Generally speaking, when you got a new differentiated tool, profitability is pretty good. And so that's an aspect how are we delivering?

And how do we think we can keep driving it? And I would say, frankly, this close to customer strategy that we've been embarked on over the last 4 to 5 years continues to be how we plan to do what we do, right, manufacturing close to customers, R&D close to customers, that delivers efficiencies. And so we'll keep doing those things. And then yes, we're absolutely working on pricing and everything that we do. So when you think about all of those levers, we're going to keep kind of working on all of those things to keep incrementally doing better and better from a profitability standpoint.

Yes. So fair to say that it's kind of in that order. Is it new product mix? And then Malaysia and the other facilities close to customer and then direct pricing?

All of it contributes. I didn't specifically put a sequence on it to indicate any order of priority. We're working on all of those.

Yes. Okay. And then time frame for kind of getting that, I mean, you said, I think, over some number of years.

Several years, I was nondescriptive or we were nondescriptive about the specific year that shows up. I think the important thing, though, is it's -- we see more opportunity, and we're going to keep working on those opportunities.

Okay. Maybe sort of last question I wanted to hit is just in terms of M&A. We have seen a lot of M&A for you for -- of any size for quite a while...

You brought in Lam and Novellus together in 2012, Jim. It's -- there's been some small stuff, but I mean that -- less transaction in the history of the industry, in my opinion, but anyway.

Exactly. So I guess the question would be, you've had tremendous success, your batting rates like 1,000 or close to it. So I guess, what is your level of appetite doing more or something in that space to kind of diversify the business even further, and do you think that's even possible today in the regulatory environment?

I think what I would tell you is I wouldn't want anybody to think M&A as part of the ongoing strategy of the company, it's not. If we simply execute on the organic opportunity we have in front of us, it's going to be outstanding. Our core markets are growing. These architectural innovations I described are happening. I wouldn't trade our position in the industry with anybody relative to the opportunity to outperform what the industry is doing. So we're going to be really happy and pleased if we just execute on the organic opportunity.

I wouldn't expect you to see any big M&A happening. It's not going to the -- there might be some small tuck-ins here and there. And we have done that over the last few years, but it's been pretty small stuff -- that's how I want people to be thinking about it.

Maybe a real final question for you then. If we're back on stage here again in 5 years, let's say, or 3 years, what do you think would be the thing that looking back investors might be most surprised about?

That's a good question. So I don't know if we'd be surprised, but hopefully, you all are going to be pleased with the operational execution of the company, the strength that we have been able to deliver relative outperformance with the new portfolio of products. I think the execution of the company will continue to be extremely good. We're good executors. We know how to do what we do. We're going to keep delivering on that. I don't know if that surprises anybody.

But I think those are the things that we're very focused on making sure we do as a company.

Excellent. I think with that, we're almost on time. But thank you very much, Doug, Ram for being here. We appreciate it.

Jim, thanks for having us.

Thank you.

Welcome to day 2 of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. semiconductors and semiconductor equipment stocks. It's my pleasure to welcome Doug Bettinger, EVP, Chief Financial Officer; Ram Ganesh, VP of Investor Relations at Lam Research.

I'll kick off with my fireside questions first, and then we'll have an opportunity to the audience to ask their questions. If you have a question, please raise your hand and the mic will come to you. Doug is going to open with some...

Yes. Let me -- I technically need to kick all of these things off with a reminder that the safe harbor language that is on our Investor Relations website is relevant to anything that I may say today. I may make forward-looking statements, but I'll be quite clear.

I'm not going to tell you anything new today. It will be consistent with everything you've heard from the company before. So if you have an expectation, something news coming out, it's probably not. But please have a look at our safe harbor nonetheless. So my lawyers will be happy, Atif -- to get going.

All right. Let's get started. Doug, let's talk about the wafer fab equipment outlook and next year's visibility with calendar '26 WFE expectations recently raised to the low $150 billion range on accelerating AI demand. Where is the upside coming from this year? And also, I forgot the objective you guys have used in terms of super exciting, whatever outlook you have into next year. Help us understand how next year is shaping up.

Yes. Listen, as we've gone through this year, we've moved our view of WFE up from 135 to 140 to low 150s to your point. And basically, what has happened is everybody in the industry -- cleanroom is what's constraining the investment right now, right? The industry is fundamentally undersupplying demand and cleanroom is a constraint.

But what I observed has happened is every one of our customers or nearly every one of our customers has figured out how to do a little bit more with what they had, squeeze things a little bit closer together. Perhaps, frankly, we've done a lot of that, and we can talk about that, Atif, as well. Maybe pull some things forward, maybe buy some cleanroom that was there and make it production worthy a little bit quicker than anyone expected. And as the year has progressed, that's basically what has happened.

However, the industry is still undersupplying demand. And that leads to our confidence in next year being a growth year. I think everybody that you listen to right now is communicating that. And we say that because we see clean rooms coming online. We have described Atif 8 to 10 new, what I would call, Tier 1 fabs coming online over the course of the next year basically or through the end of '27. That reinforces our confidence in the fact that WFE is going to grow into next year.

The constraint will still be there. However, it will get somewhat better. And when we look at that and when we do our own tops-down analysis, which Ram and his team do for the company, we continue to see AI demand remaining very strong, moving beyond training and inferencing into eventually physical AI, and that gives us confidence also in the need to invest more. So that is basically what is happening. It is a tops-down and bottoms-up assessment of what is going to be able to be supported next year. And frankly, I think the year after that probably continues to be even stronger than that.

All right. On that top-down point that you made, Doug, a question for you, Ram. You guys introduced this Rule of thumb 400. Every $100 billion of AI data center CapEx could translate to roughly $8 billion of WFE, which was super handy for the sell-siders. And recently, you suggested this number could now be $1 billion to $2 billion higher. What has driven this increase? Is it more silicon content or memory intensity? Or can you explain that?

Yes, -- it's a combination of both. We kind of looked at the timing of when we gave that number. It was the most pertinent thing, right? Everybody was talking about how many gigawatts of data centers are coming. We felt that was the most useful thing for you guys to think about the industry and specifically how the tiering between leading-edge foundry, logic, DRAM and NAND was. So we gave that number.

And you are correct, since then, we upticked that number by a couple of billion. When we first came out, actually, people said, "Oh, you're being optimistic on that number, right? " And then lo and behold, it's become even better than that. The uptick is all 3. If you look at it, we used the initial flavors of the hardware that came out, the large GPU maker had released some new versions of their latest GPU, and we use that as a benchmark and the industry pricing on capital intensity to come up with that number.

And since then, things have inflected higher, both on the hardware content as well as on the intensity side. If you remember, we recently took up the NAND SAM per wafer from 1.8x that we gave at the Analyst Day to 2x. So the complexity of these devices also is a little bit higher than what we originally included in that model. So that was the gist of how we had taken that number up.

Yes. Great. Doug, you mentioned customer clean room space being the driver in terms of how much higher the WFE?

It's the constraining item and I think we'll be through next year for sure.

All right. Any other some supply restrictions around utilities or labor or your manufacturers...

Listen, I think maybe -- let me describe sort of what's going on in the industry relative to conversations just to help you frame everything. First, we are having very deep conversations with every one of our customers about what do you need next quarter? What do you need next year, right? Give us an understanding of where you're going so that we can get ready. And we absolutely are getting ready.

And so the intensity of those conversations and the conviction of those conversations, I've never seen stronger, frankly, in all my years in the industry. The conversation intensity is really, really high. Everybody wants to make sure that they're going to get what they think they need, right? So that's happening between us and our customers. Then we take that back and propagate that back to our supply chain with the same intensity to make sure that they're ready for what we're going to need.

We're doing the same thing with our own bricks and mortar. We talked about the second facility in Malaysia. We're doing a bunch of things in existing facility footprints, densifying our ability to actually get more output from the same square footage of cleanroom that we previously had.

Necessity is the mother of invention, and that's very much what's happening. We're trying to squeeze everything out. But we were fortunate in that we already had plans for a second facility in Malaysia, essentially a cookie cutter of the previous facility. So we're pulling hard on making that available sooner. We're hiring and training and focusing on making sure we're not going to be the bottleneck.

I would tell you, though, when you manufacture and make as many different tool types as we do that have thousands and thousands of parts in them, there's always something that is constraining us. And then you work -- we've got an amazing supply chain organization that goes and works on things that pop up. It's very much manageable, but there's always something that's popping up. It's not easy, but we've got a great organization that knows how to do all of these things. So that's very much what's happening.

And I think all of us also are doing our own tops-down modeling for where is this going? I'm fortunate to have Ram and his team, great group of people that can do extraordinary modeling, so we can make sure bottoms up and tops-down generally makes sense, and it absolutely does.

Great. Let's talk about your products and end markets. I had the experience to travel with Tim last week and...

Thanks for taking them on the road. I think it was a really good set of meetings.

Yes. So for me, it was really interesting that Lam historically has been viewed as more of a memory-centric company with a lot more memory exposure, but the progress that you've made on the foundry logic side, particularly with the conductor etch tool surprised me, based...

Yes. The Akara tool is doing extraordinarily well. This is a great product, right?

So I think the point that Tim was making was that historically, the cycles in spending have been more kind of Moore's Law driven. It's all about making incremental improvements in performance. But within this day of AI, you're getting -- the incremental performance and latency and any kind of change you can make is super important to your customers. And that's driving the adoption of some of these newer products like Akara and conductor etch. And so that's what's different this cycle that performance has become a bigger kind of...

AI compute is driving everything. And any incremental performance in the parallel compute architecture that you can squeeze out is hugely valuable. And so frankly, greater tool performance contributes to greater silicon performance. And we are fortunate over the last, I don't know, 3 to 5 years, Atif, we've increased R&D investment such that these new products that are coming online like Akara, like Vantex, like Halo are hugely beneficial in that area. So I think that's probably what Tim was communicating in your meetings last week.

Right.

If I may add one thing is if you look at our customers and the scale of AI, if they miss the product cycle or if they don't have the right products at the right time, the cost of missing that given where industry spending is, I mean, in semiconductor industry, demand is, then it's very high, which means if an equipment company can help them with the velocity of the execution in totality, right, then that's a very good thing, right? So that's where you kind of deliver the value that our customers really kind of appreciate products like Akara, the market.

And then maybe you guys can talk about -- you talked about high 30s SAM share of the market. And as we look into these products, particularly your momentum on the foundry/logic side and maybe using some of these products in DRAM, how should we think about the upside to that SAM percentage over time?

Yes. Let me unpack it a little bit, and then I'll come back to your last question a little bit on why are we doing so well in foundry and logic. We had an Investor Day early last year where we talked about, hey, we see our SAM expanding from the low 30s to the high 30% of WFE. Frankly, this year, we're north of the mid-30s, probably north of 36%. So it's accelerated, right? We've moved forward a little more quickly perhaps than we had thought back then. And what's contributed -- part of it's been foundry and logic. It's also been an acceleration of different node migrations that have happened.

And so let me come back to your last question a little bit. Why are we winning in foundry and logic? Our SAM is expanding in foundry and logic because we're moving to gate-all-around. Gate-all-around is more etch and deposition intensive. It's got selective etch requirements. It's got ALD requirements. Those are things we do and things we do really well. It's got high aspect ratio etching, Akara, as an example, we're doing well there.

And frankly, if you remember the things we've talked about, we said, hey, for every 100,000 wafer starts a gate-all-around capacity, our SAM expands by $1 billion. Layer on top of that, when backside power eventually shows up, and it will relatively soon, that is another incremental $1 billion SAM expansion opportunity for every 100,000 starts. So that is showing up.

On top of that, advanced packaging is critically important in the foundry space, as you know, Atif, right? Our advanced packaging business is growing north of 70% this year. And a big contributor to that is what is happening in foundry and logic. And honestly, you've not yet seen the move to the panel form factor, which you're going to, and that will show up in foundry and logic. So when you put all of these things together, it leads to the strength of the business and the performance that you've seen from us in foundry, Atif.

Just on the panel level packaging, how close is the industry to meaningful volume adoption? And what are the challenges around uniformity, yield? And do you need to be looking at kind of inorganic growth to expand the market?

We don't need inorganic growth. No. Listen, the things we do well at a wafer level, we will do well in panel. I read that to be the TSV growth rate silicon etching and copper electroplating, we're going to be extraordinarily strong there in addition to other things that we do in advanced packaging at a wafer level. We will continue to do well in a panel form factor.

Now you may remember, we acquired a company a few years ago in Austria that actually did some of the panel form factor capability, and that's accelerated our R&D progress there. So we don't need anything new. We don't need anything incremental. It will all be organic. And we are very well situated for that transition when it happens. We are investing R&D right now to make sure we continue to be well positioned for this change.

Just to round up the discussion on the products. Tim spoke very highly on surface separation, just getting.

Selective etch.

Selective, [ we will talk to ] and then Aether dry resist is something you guys have talked about in the past, $1.5 billion cumulative 5-year revenue opportunity. Can you update us what's going on, on the Aether dry resist program?

Yes. No, thanks for asking about that. Listen, you probably saw some announcements about High-NA adoption over the last day or so from players in the industry. That's going to be beneficial for us. Listen, the pull for dry resist is really strong. I'm quite confident that $1.5 billion number is going to be higher than $1.5 billion. I'm not ready to give you a new number yet, but I'm highly confident we're going to do better than that.

And I say that based on things I hear from customers, things I see from customers, opportunity that's incremental to what we previously saw. We're going to upside that $1.5 billion. Pull is really, really good.

All right. Ram, going back to you, NAND, you do a lot of work in thinking around the drivers of the NAND market, KV cache, how is this market changing? And you guys have laid out this $40 billion NAND upgrade opportunity historically through calendar '27. Can you help us understand what's changing in the NAND market from a demand perspective, if you have an updated number? Or how are you looking at the NAND opportunity?

Yes. I mean, answering the latter part of your question, the $40 billion was given with the assumption on what it takes to go from sub-200 layers to over 200 layers. That's a fixed number, right? What has changed is not the number per se, but the rate at which we originally set that number and people assume, we said several years and there was a range between 3 to 5 years. And since then, we have said it will be done by end of 2027, which is compressing it by 3 years. So the pace at which the change happened was the one that is the newer, not the amount because that's -- there's a fixed amount, right? How much you need to upgrade to the next layer.

NAND, if you take a step back and the first part of your question in terms of demand, clearly, when we came out a little bit more optimistic on the NAND at the Analyst Day, people were questing. Now it's the other way around, do understand, but then there is a supply and demand balance that people want to understand, hey, can NAND do conversions predominantly versus when do they need capacity.

Look, from historically, how capacity has been added, if you take that as a baseline, still, '26 and '27 is conversion driven. There's a little bit of greenfield capacity in any given year that comes, and that is the case for '26 and '27. But for majority, it's still conversion driven for NAND. And if you tie that in with customer new fab announcement, we do think that beyond '27, if demand were to sustain, which we don't see a reason why it should derail given where AI is going and memory hierarchy is going, that you probably need some capacity additions, say, maybe like second half of '28 and beyond, right? It times with the fab announcement made by some of our leading customers.

Yes. And I'll just add on. When you look from peak capacity to where NAND is going to be at the end of this year, raw wafer starts have probably come down 20%, Atif. So you got to supplement that at some point. There are some wafer capacity additions this year and into next year. It's just not that much.

Got it. The question is around the high bandwidth flash or the new generation NAND. There's a lot of buzz around beyond conventional enterprise SSD, emerging high-performance NAND architectures, HBF. Can you just talk about from your kind of vantage point, are you seeing any momentum in these technologies getting some sort of volume adoption or making a breakthrough? Or this is more of a longer-term road map?

Listen, you're hearing a lot of my customers -- our customers talk about this. People are working on it. You're not seeing any volume yet. But to the extent that this does ultimately show up, this is going to be great for us. You know the strength that we already have in NAND. You know the strength we have in the -- through silicon via. This combines both together. So if this does actually begin to show up as part of the memory hierarchy in a more meaningful way, this is going to be great for us.

All right. Moving on to a very topical question on gross margins. Doug, I almost feel guilty asking this question because you have done so well in expanding gross margins to where they are, but my clients are greedy. They want...

Everybody wants more. What have you done for me lately? But if you will allow me, I'll point out. We just printed 52% gross margin. That was the highest gross margin in 20 years at Lam Research. So I feel great about how we're managing things. It's been a combination of new product introduction. It's been -- it's added to the close to customer strategy, right, the factories being closer to where customers are. There's been an aspect of pricing in it. So we're working on everything, pulling all the levers that we can.

All right. And is there a framework on...

Yes. And I was just going to add, maybe I'm jumping ahead on your question. We also, on the last earnings call, talked about a new objective relative to the profitability target for the company, right? We just delivered 52%. We guided 52% and then communicated, hey, we think we see a path to get to the mid-50s gross margin, continuing to exercise all those things that I just mentioned. It will be an extension of close customer strategy, ramping that second factory in Malaysia, benefits from just the supply chain being close to us, that helps new product introduction, right?

When you have a product like Akara coming out, you tend to be able to get paid for things when you're delivering really good results, performance on the wafer, and we're doing that. And then we're working on pricing where we can. All of those things contribute to what we're trying to deliver. And frankly, I feel great about what we've been able to do, and we see continued opportunity as we go forward.

That's helpful. Doug, let's talk about the CSBG business with more than 100,000 installed chambers, how is CSBG opportunity evolving as tools become more complex and customers put greater value on uptime, yield and productivity?

Yes. Let me unpack CSBG a little bit relative to how you should be thinking about things going forward. First, I mean, the last quarter that we delivered third consecutive record, nearly $2.5 billion in revenue from CSBG. It's doing great. We're going to benefit from the fact that WFE is pretty strong this year. So chamber count will grow nicely this year, which will provide an incremental opportunity to do more. So that's one thing to think about.

Spare parts are the biggest individual component in CSBG. We're benefiting right now from the fact that utilization in the industry is basically at 100%. And so spare parts consumption is high. That's going to continue for sure. Upgrades are very strong. It's got a heavy footprint in what's going on in NAND, right? You saw our NAND business last quarter was very strong. So upgrades are doing well and will continue to.

The Reliant product line is doing pretty well, right? That is the equipment that goes into more mature node spending. Even though everything you're hearing us talk about right now is focused on the leading edge, the mature node investment is actually pretty strong. When you look at what's happening in analog and industrial and so forth, you're seeing strengthening there.

And then layer on top of that, the things we're doing strategically in service, right? We are beginning to offer to customers different kinds of service offerings, using cobots and equipment intelligence and different algorithmic data techniques to change how we deliver service for our customers. And this is exciting to the customer because you're delivering incremental performance capability.

And when you look at all of those things, it moves the service opportunity. This is all incremental to the historic way we have delivered service, which has been show up and do a task, right, provide some maintenance to the equipment. All of that is still here. But what the cobots and Equipment Intelligence enable us to do is go in, look at the fleet of the customers' tools and identify different opportunities we can do to make things better.

And when output is at such a high value right now, the pull for that is very strong. And so it changes the opportunity here to deliver service in a different way by guaranteeing some outcome -- and the customers really like that when you go in, tell them you can do something, do a proof of concept and deliver it and then the opportunity continues to grow. So that's what we're quite excited about in the service area of CSBG, that's got a lot of pull right now.

On the cobot, Tim was super excited about being an early adopter on Dextro cobots. Help to understand what is different about your tools or products? Or are you just being an early adopter to enable better sensibility and uptime for your customers by using cobots. But is it different -- something different about your products that you guys are doing it more so than your peers?

Listen, I think we saw this before others saw it. And I think right now, because the customer is seeing such value from us, they're going to force our competitors to do this as well. But we're meaningfully ahead of where anybody else is with this. We identified the opportunity to do this way before anybody else did. We brought product offering way before anybody else even thought about doing this.

And as always in this industry, when you do something better than your competition, your customer then goes to your competition says, you need to do this as well. So I think that's going to happen. But we're quite a ways ahead of this. We're investing in R&D. We've expanded from a single tool type to, I think, 8 now, and it's growing beyond that. So you're going to see us continue to provide real leadership, I think, in the industry in this space.

Great. Let me pause here and see if there are any questions in the audience. If you have a question, please raise your hand.

Yes, we've got one upfront here. We get a mic up here.

Possibly [indiscernible] of DRAM. So just wanted to understand how that will impact [indiscernible] trend and how and securing that trend. How long would that be going for?

Yes. Listen, it hasn't changed anything our customers are doing. And frankly, I've been getting this question and me say, this is a red herring. It's got really no impact that I can see. Ram, I don't know, you've done more work on this than I have.

Yes. I mean, look, ultimately, there is a requirement for the model, right? Like the models require a certain amount of compute power. And the way we look at it from our vantage point of view is the hardware totality of requirements as we look from the transition to agentic AI to physical AI over the next multiyear period, the compute per gigawatt, which is the most important metric for generating the right amount of tokens for these models is very, very hardware favorable in totality.

And equipment companies in general, are very well pegged to that trend. And we see this as just a short-term noise just because of various other things that are going on. We don't see a direct impact to our business.

Good question. Yes, we've got another one up here.

Micron sort of conference in August, made the statement that 2027 would be even tighter than 2026. Sorry, yes, 2027 would be tighter than '26. Is that an industry-wide belief? And I look at some of the industry forecast for CapEx for DRAM, $60 billion last year, growing to over $100 billion this year. What does it take for DRAM memory in general to get into supply-demand balance?

Yes. I mean we've got a ways to go to get there. You can just look at pricing and profitability. And I would never disagree with any of our customers if Micron said that, that's an accurate representation of what's happening, likely an industry-wide representation.

And yes, I mean, things -- the industry needs more cleanroom space, and that's beginning to come online, but it just takes time, right? You can't like snap your fingers and have it show up. It takes a couple of years to bring new cleanroom online. So that's what's constraining things right now.

We made a comment earlier about 2028 looking like another strong year. That's something that comes up as 2028 is there's some level of uncertainty maybe because it's still a year, right? But what gives you -- what makes you optimistic at this point about '28?

Our tops-down modeling, the bottoms-up conversations with customers about where things are heading and our view of kind of the timing of cleanroom showing up. Again, I'm not going to put my neck out quite yet on '28. It's still a long ways away. Lots can change. But the strength of AI demand continuing, the fact that you hear comments from some of our customers like you just mentioned, that things are still going to be undersupplied in '27 leads you to think '28 is probably a pretty decent year as well. Yes. We got one in the middle here.

Just following up on the same question. I think a lot of the memory players have talked about 20% to 25% capacity growth year-on-year within DRAM, for example. And you're doing that, the constraint on that is one of the constraints is the cleanrooms as you have been saying.

You mentioned earlier about your supply chain though as an example, and that even when cleanrooms come online, that doesn't solve all the problems automatically because Lam supply chain and your suppliers would also need to increase that. So if -- I'm wondering if you can just elaborate on that a little bit more, if cleanrooms did magically sort themselves out within a year or 18 months longer, what are the challenges for Lam or more generally within [ semi-cap ] then to be able to meet that new demand from the memory players if they were to try and grow capacity 600,000 wafers per month or something like that, more than the 400 that they talk about...

Yes. Listen, we have a pretty good understanding of clean rooms that are showing up when they're showing up because they can't just magically like come from nowhere. Maybe what would help is I'll describe the conversations that are happening to make sure it's pretty clear. There's someone at Lam whose job it is, in fact, teams of people to know what every single customer plans to do over the next year, 2 years and beyond, right? We've got account teams. That's our job.

When I listen to them, describe to me what's going on, the conviction of those conversations has never been higher, right? And so all of our customers have a huge motivation to make sure we're able to get them what they need. So I would say that's where everything starts, like every single customer, what do you think you're going to need next year? What's the point estimate? What's the upside? And then tell me when, right? What's the error bar around it. We then take that and make sure we're going to be ready with the same thing.

Now the good news from our point of view is, generally speaking, our lead time to get ready is shorter than our customers is because we can just do things quicker. We're not building as big a cleanroom and so forth. We were fortunate in that we had another facility coming online in Malaysia, right? I talked about that. So we're getting that ready. The lead time we have there is to facilitize it, hire and train people that can actually build product.

And then we take all of this information that's coming back from our customers to us then go back to our supply chain. to make sure they're going to be prepared for it as well, right? And I think the intensity of all of those conversations because none of us want to be the constraining item in the industry, that's not a great place to be. And so that conversation is happening with an intensity that I can't remember in the past.

And I think all of us, if you go all the way back to our supply chain, even maybe a layer or 2 behind that, everybody sees this AI demand. It's obvious that it's here. Everybody just needs to know to what magnitude. And so those conversations are quite robust right now to make sure we're all getting prepared for what everybody needs. Does that help?

In Malaysia-2, you were going to say Malaysia Phase 2.

Yes. I mean I talked about -- we've got another facility in Malaysia that's coming online. And some of the -- like I said, necessity is another invention in this industry. We're going through a process of trying to get more output from the existing square footage we already have. We're densifying things, right? We're getting more output from the same square footage. And you might say, hey, why weren't you always doing that? Well, you didn't know you needed to until you needed to. And so there's a lot of creative things we're doing with our own capability to try to squeeze a little bit more out. And frankly, I think my customers are doing the same. Our customers are doing the same thing.

Last one for me. In terms of your China sales exposure, you guys are a bit unique that you do have a bit higher international fab exposure in China versus peers because of your NAND market share.

And DRAM.

And DRAM, too. So fundamentally, if the non-China market is growing faster than the China, should we be thinking about your China sales exposure roughly stable around these levels this year, next year?

Listen, I think this is kind of a numerator denominator thing. The China investment continues. It's not like it's gone away. However, when you look at where all of the growth is showing up, it's with the leading-edge customer base. It's DRAM. It's NAND, it's going into AI compute from the leading foundry and others. That's where that growth is really happening over and above where it was last year. It's not that China has gone away. It absolutely has not. But everything else is just growing faster.

And so I think you're going to probably see over the next several years, a continuation of those trends. And as a result, I think for everybody in the industry as well as for us, you will see China as a percent of overall revenues declining, not because China is going away. It absolutely is not, but everything is just growing much faster.

But there will be quarter-to-quarter variability, Atif. It's not going to monotonically just kind of, I mean decline, right? It's always lumpy.

Awesome. We're almost out of time. Doug and Ram, thank you for coming to Citi Conference.

Of course, thanks for having us, Atif. I appreciate it, and thanks for taking time on the road last week.

Thank you.

Good day, and welcome to the Lam Research Corporation June '26 Earnings Conference Call.

Please note this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and we'll review our financial results for the June 2026 quarter and our outlook for the September 2026 quarter.

The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release and the accompanying presentation slides for today can be found on the Investors section of the company's website. Today's presentation and Q&A include forward-looking statements based on our current beliefs, expectations and assumptions. These statements are subject to risks and uncertainties, and actual results could differ materially from those expressed or implied in such statements.

For a discussion of factors that could cause actual risks to differ materially, please refer to the risk factors in our most recently filed periodic reports on Form 10-K, on Form 10-Q and subsequent filings with the SEC and the cautionary statement in the accompanying presentation slides.

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 presentation lines. This call is scheduled to last until 3:00 p.m. 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.

Thanks, Ram. In the June quarter, Lam delivered record revenue, operating margin and earnings per share. Sequential top line growth was led by a doubling of NAND revenue from the prior quarter underscoring the growing importance of storage to AI system performance. Our customer support business group also posted strong revenue growth driven by robust demand for upgrades Reliant and Equipment Intelligence enabled services.

As we enter the second half of the year, we expect calendar 2026 wafer fab equipment spending or WFE to be in the low $150 billion range up from our prior outlook of $140 billion with upside bias. Against this backdrop of rising demand, Lam's momentum is strong. Our $8.1 billion September quarter revenue guide represents more than 20% growth quarter-on-quarter. And we see 2026 shaping up to be our third consecutive year of relative outperformance to WFE.

Looking into 2027, we see an extraordinary setup for WFE growth. AI is driving record revenue and profitability for our customers who have signaled unprecedented long-term demand visibility. They've also announced multiyear time of new fab projects and are working with us to secure equipment orders to fill the incremental clean room space as it comes online.

Spending on capacity is occurring alongside investments in technology transitions that are creating structural opportunities for Lam to outgrow WFE. As a driver of industry investment, we are seeing AI progress through distinct waves from training to inference to agentic and now increasingly physical AI. Each wave is building on what came before, creating new AI use cases, greater demand and new performance requirements. We're seeing the impact of this progression notably in NAND. We're expanding context windows and persistent memory requirements driving significantly higher demand for flash storage.

In response, customers are in the near term, adding bit supply and improving device capability through installed base conversions to 200-plus layer architectures. As layer counts rise and manufacturing complexity grows, so does our opportunity. We expect Lam's served available market or SAM per wafer in NAND to double from the 128-layer node to 500-plus layer devices.

AI is also reshaping the technology requirements in advanced foundry logic and DRAM. Gate all around CFE, HBM, 4Fs squared and panel-level advanced packaging, all featured prominently in the current and future AI device road maps. Through these transitions, increasing deposition and etch intensity remains the common thread. Higher aspect ratio structures, more complex 3D architectures, smaller pitch patterning and new materials integration are all areas where Lam is a leader.

We see the benefit of this technology acceleration in our expanding SAM, and we are moving towards our target of high 30s SAM as a percentage of WFE faster than what we had outlined at our 2025 Investor Day.

Let me highlight a few examples that illustrate why we're excited about what's ahead for Lam. Starting with conductor Etch. Lam is the industry leader with an installed base of more than 40,000 chambers worldwide. With our latest platform, Akara, we are further strengthening our position. Akara combines unique direct drive plasma technology with industry-leading high aspect ratio patterning capabilities. first adopted for 2-nanometer and below gate all-around architectures and foundry logic, Akara is now gaining momentum in advanced DRAM.

We have secured several strategic tool of record positions, including recent wins for the most challenging gate etch applications. Since its launch, Akara's installed base has doubled every year. and we expect that growth trajectory to continue in 2027. DRAM pitch scaling is also driving higher interconnect density and wire and complexity. Shrinking dimensions place increasing demands on pattern fidelity, RC performance and reliability, driving adoption of advanced hard masks, etch stops and diffusion barriers.

We previously addressed these patterning challenges in foundry logic and are now extending those capabilities and our production proven technologies into DRAM. For example, DRAM customers are adopting our Vector hardmask deposition platform for low film patterning. By co-optimizing the hard mask film properties with our conductor etch process we have shown we can deliver improved transistor performance and better yield.

Lam's co-optimized solution also offers over 20% cost savings to customers compared to traditional approaches. Similarly, DRAM customers are increasingly adopting our vector diffusion barrier systems to meet next-generation requirements. Our modular architecture combines interface cleaning etch stop enhancement and hermetic protection to prevent shorting at tighter pitches and reduce capacitance by approximately 5% versus competing technologies.

As devices scale, surface engineering becomes increasingly important for reducing deep activity and variability. In the transition from FinFET to gate all around, the number of applications requiring surface treatment roughly doubles. Our Argos selective etch system uniquely addresses this need. By leveraging proprietary plasma technology, Argos creates a radical rich environment that enables highly selective surface treatment with minimal substrate damage.

As a result, we are winning leading-edge foundry logic customers at 2-nanometer and below and expanding Argos into a growing set of DRAM applications.

Turning to advanced packaging. As an industry leader in TSV etch and electroplating, we are on track to deliver greater than 70% year-on-year growth. The long-term opportunity is even more compelling as AI performance will increasingly depend less on transistor density scaling and instead on integrating more chiplets, more HBM stacks and greater memory bandwidth within a single package. We expect each successive generation of advanced packaging to require more redistribution layers, denser copper interconnects, taller mega pillar structures and increasingly complex power delivery networks.

We also see future AI packages exceeding 9x the reticle size, roughly 3 times larger than today's mainstream designs. This is driving the industry to look beyond traditional wafer-based architectures, toward larger format panel level packaging approaches. Panels enable the creation of larger AI packages but they also introduced new challenges to maintain deposition uniformity material properties, defect control and yield across the larger panel area.

By leveraging technology and learning from our wafer-based SABRE 3D and advanced wet processing platforms, we have shipped 510 by 515-millimeter panel systems into development programs across multiple geographies. And this year, we will also ship our first 310 x 310-millimeter panel tool putting us at the leading edge of this important packaging transition.

In CSBG, customers are increasingly leveraging Lam's equipment intelligence and fab automation solutions to help increase capacity as they race to meet growing AI demand. Lam's Dextro cobots, the industry's first collaborative maintenance robots are seeing rapid adoption. The precision and repeatability of automated maintenance is leading to improved first-time right recovery, higher tool availability and increased output, all critical at a time of industry-wide supply shortages.

We are accelerating Dextro application development. And since the start of 2026 have doubled the number of preventative maintenance tasks that can be automated. Importantly, many of the equipment intelligence and Dextro solutions initially proven out for NAND are now expanding into DRAM, creating additional service revenue opportunities in the second half of the year.

Overall, we are still in the very early stages of a multiyear rollout of these offerings across our installed base. So to sum up, this is an exciting time for the industry and for Lam, AI is driving unprecedented demand, greater technical requirements and accelerated architectural scaling at both the device and packaging level. These trends all point to more opportunities for Lam.

With our etch and deposition technology leadership, our close customer partnerships and our increasing operational velocity, we believe we are well positioned to outperform this year and in the years ahead. Thank you, and here's Doug.

Excellent.

Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We were pleased with our continued strong execution in the June quarter, resulting in our fourth consecutive quarter of record revenue, our highest quarterly gross margin in 20 years, record operating margin and record earnings per share.

We just finished fiscal year 2026, and we had record revenue of $23.2 billion and gross margin of 50.6%. Our diluted earnings per share in fiscal year 2026 was also a record, coming in at $5.82, which was up 41% from fiscal year 2025. We're ahead of the profitability objectives we discussed at our 2025 Investor Day, delivered through robust top line growth and strong operational execution.

Let's look at the details of our June quarter financial results. Our revenue was above the midpoint of guidance. With gross margin, operating margin and earnings per share all exceeded the high end of our guided range. Revenue for the June quarter was $6.72 billion, which was up 15% sequentially and up 30% from the same period in 2025. Our deferred revenue balance at quarter end was $2.43 billion, which was an increase of $213 million from the March quarter. The increase was driven by a variety of factors, the largest of which was customer downpayments.

From a market segment perspective, June quarter systems revenue in memory was 46%, an increase from 39% in the prior quarter. On a dollar basis, this represented a record level for us in total memory. Within memory, nonvolatile memory accounted for 23% of our systems revenue, which was up from the March quarter level of 12%. NAND revenue dollars more than doubled sequentially as the industry focuses on conversions to 256 layer and above class devices, primarily enabling enterprise SSDs.

DRAM remained strong, representing 23% of systems revenue compared to 27% in the March quarter. On a dollar basis, DRAM revenue was flattish with the record level we set in the March quarter. DRAM spending remained directed towards wafer additions and technology upgrades across 1 alpha, 1 beta and 1 gamma nodes enabling DDR5, LPDDR5 and high-bandwidth memory. Foundry represented 44% of our systems revenue, down from the percentage concentration in the March quarter of 54%.

Mature node spending with our customers in China was down sequentially. This was largely offset by strength in leading-edge process on investments in 2- and 3-nanometer capability, as well as advanced packaging.

And finally, Logic and Other were 10% of our systems revenue in the June quarter, which was up from the prior quarter level of 7%. Let me now discuss the regional composition of our total revenue. The Taiwan region contributed 27% of revenue, up from the March quarter at 23%. Taiwan represented a new record level for us in dollar terms. China declined as we expected it would and accounted for 26% of revenue.

I'll just remind you that China was 34% of revenue last quarter. I would mention that within China, the global multinational customers grew sequentially, while the domestic customer base declined. Our next largest geographic region was Korea at 20% of revenue in the June quarter, down a little bit from the March quarter level of 23%. The customer support business group generated a third consecutive quarter of record revenue at nearly $2.5 billion in the June quarter, which was up 17% sequentially from March quarter and 43% higher than the same period in 2025.

Sequentially, the increase was primarily due to record upgrade revenue. We also saw smaller increases in Reliant and services. Spare part purchases remained consistent with their strong level from the March quarter.

Let's look at the gross margin performance. The June quarter came in at 52%, exceeding the upper end of our guidance range and improving from the March quarter level of 49.9%. Gross margin was stronger due to a myriad of factors, including pricing actions, operational and scale efficiencies as well as a favorable product mix. Operating expenses in the June quarter were $916 million, up from the prior quarter amount of $866 million. The increase was mainly due to employee-related spending associated with higher headcount and variable compensation expense as a result of our improving profitability.

R&D accounted for 67% of our total operating expenses. We are funding incremental product spending that should enhance the breadth and competitiveness of our future portfolio. Operating margin for the June quarter was 38.4%, also exceeding the upper end of our guidance range and improvement from the March quarter level of 35%. This improvement was primarily due to the higher revenue and stronger gross margin.

Our non-GAAP tax rate third quarter was 11%, in line with our expectations. We do believe the tax rate will be in the mid-teens in the September quarter due to the increase in revenue in higher tax jurisdictions, primarily the United States as we enter the new fiscal year. The U.S. GILTI rate is also higher as we enter the fiscal year. We should expect this uptick in the tax rate to continue for the remainder of 2026 and likely beyond.

Other income and expense for the June quarter was approximately $19 million compared with $8 million in expense in the March quarter. The change in OI&E was primarily due to foreign exchange. And as we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter.

Let's look at capital return. We allocated approximately $246 million to share repurchases, and we paid $325 million in dividends in the June quarter. We returned 45% of free cash flow in the quarter. Year-to-date, we have returned 81% of free cash flow, and our plans remain to return at least 85% of free cash flow to our shareholders over time.

For the June quarter, diluted earnings per share were a record $1.82. The diluted share count was roughly 1.256 billion shares, down from the March quarter. We have $4 billion remaining on our board-authorized share repurchase program.

Let me pivot to the balance sheet. Our cash and short-term investments totaled $5.6 billion at the end of the June quarter, up from $4.8 billion at the end of the March quarter. The primary factors behind the cash increase for cash from operating activities somewhat offset by our capital return activities. As the business grows, we'd like to build a little bit more cash on the balance sheet to support potential liquidity needs like capital spending and working capital.

Days sales outstanding were 72 days in the June quarter, an increase from 64 days in the March quarter. Inventory at the June quarter end totaled $4.3 billion which was an increase in the March quarter as we are building inventory to meet growing customer demand. Nonetheless, inventory turns continue to improve coming in at 3x versus 2.9x in the prior quarter. This is the highest inventory turns level we've delivered in almost 5 years.

Our noncash expenses in the June quarter included approximately $104 million for equity compensation, $105 million in depreciation and $15 million in amortization. Capital expenditures in the June quarter were $189 million. Capital spending was centered on lab investments in the United States and global growth in our manufacturing facilities. We ended the June quarter with approximately 22,400 regular full-time employees, which was an increase of approximately 1,800 people from the prior quarter.

We had headcount growth primarily in the factory and field organizations to support increased tool installations as well as growing manufacturing activities. We also added headcount in R&D.

Now let's turn to our non-GAAP guidance for the September 2026 quarter. We're expecting revenue of $8.1 billion, plus or minus $400 million. Gross margin of 52%, plus or minus 1 percentage point; operating margins of 39.5%, plus or minus 1 percentage point. I would just mention, we are growing spending in the September quarter albeit at a much slower rate than the growth in revenue. And finally, we're expecting earnings per share of $2.15, plus or minus $0.15 based on a share count of approximately 1.255 billion shares.

So let me wrap up by sharing a brief update to the long-term profitability framework that we introduced at our Investor Day 1.5 years ago. Since then, demand has strengthened significantly, and we're executing well to the strategy that we outlined. As Tim mentioned, we see 2026 shaping up to be our third consecutive year our outperformance to the WFE. We've been growing the CSBG business faster than the installed base, and our close to customer strategy has helped expand our margins. The technology inflections increasing deposition ex intensity reinforce our confidence that we can continue to expand our SAM creating additional opportunities for gaining share.

Our SAM expansion is trending toward that high 30% range that we communicated. Now within this framework, we intend to drive gross margins to the mid-50% level and operating margins to the mid-40% level over the next several years as the AI transformation drives continued greater investment in global semiconductor capacity.

Operator, that concludes our scripted remarks. We would now like to open up the call for questions.

[Operator Instructions]

The first question today comes from Timothy Arcuri with UBS.

Doug, I know you usually don't guide by segment, but service was up so much in June. And based upon the gross margin guidance, which you're guiding basically flattish on a revenue. I would imagine that it's up big again in September. So can you give us some sense of sort of what to expect in service within the guidance for September?

Listen, Tim, I think you're going to see similar profile of what we saw this quarter, and I won't get into specific numbers necessarily, but upgrades are going to continue to be strong, I think, right, driven by what you got going on in NAND investment. I expect spares to continue to be pretty strong given the high utilization in the industry.

And then we're excited about what's going on in Advanced Services with all the cobot and Equipment Intelligence. So I think it's going to be pretty consistent across the board, Tim, similar to what we saw this quarter.

Great, Doug. And then -- so the new gross margin of mid-50s, that makes perfect sense. That's great. And I guess the question is, how long will it take to get gross margin to that level? I know -- I mean, obviously, if you look at your margins versus, say, the large foundry margins, I mean it used to be within 5 points and now it's between 5 and 7 points as early as the first half of '24. And now you're like the gap is like 2x that. So there's obviously a lot of room for you to move it up. How long will it take you for you to move that up? Is it like a revenue thing or is it a time fate?

A little bit of both, Tim. -- honestly, right? Part of it is scale and scope and revenue growth. Part of it is new product introduction and getting fairly paid for the value we're delivering. I expect, Tim, this is over the next several years that we'll continue to drive it on an annual basis for sure, but it's going to take several years, I think, to get to those levels, Tim.

The next question comes from CJ Muse with Cantor.

I guess a follow-up on the CSBG side of the house. It looks like you're going to grow in the mid-30s, plus or minus. I'm just curious, how do you think about the growth rate beyond '26 into '27, how much strength should we continue to see from NAND inside here? How are you thinking about Reliant? Does that start to recover more meaningfully and do we see sustained kind of spares as well? I would love to hear your thoughts there.

Yes, CJ, I'll start, and then I'll let Tim add on. Yes, the framework we put out at the Investor Day 1.5 years ago, still, I would encourage you to think about it in a similar way. Now clearly, we've grown faster than that suggested back 1.5 years ago, and that's come a little bit from event services. We're super excited about that driving incremental growth. It's Tim, also from just really high utilization in the industry, which drives consumption of spares and service. To the extent that, that continues, spares and service will continue to be really strong from that.

And then I think the way to think about Reliant is think about what's going on in the mature node investment, a little bit of what's happening in China. And then more broadly, what's happening in the analog, industrial, automotive space. So that will be a little bit more situational, I guess. But that's the framework to think about. We're probably going to do a little bit better than the growth that we talked about 1.5 years ago.

Perfect. And then I guess, could you speak to perhaps new entrants or more meaningful spending from historically larger spenders on the logic front? What kind of visibility do you have today? And what kind of growth should we expect into 2017 and beyond?

Yes. CJ, you're funny. Asking that tricky question about new logic customers. Yes, there's some of the stuff going on. There's clearly dialogue, and I'll let comment a little bit. We are talking to that new logic customer in the U.S. that is happening.

Yes, I don't have much to add other than to say we're engaged. And I think what's exciting for us is that in many cases where we have new entrants come into founder logic or memory or any of the spaces they're always looking at some of the more innovative approaches. They're not encumbered by kind of the road maps and installed base that's existed. And so I think that we're hoping that when we think about all of the new systems that we've talked about, I mentioned a few in the prepared remarks, that we've talked about a lot of others in other calls, that's an opportunity for us to showcase the significant technical improvement, Lam is in on the foundry logic side. And I think that's what new entrants mean for us is more opportunities to grow our share within that space.

The next question comes from Harlan Sur with JPMorgan.

If I look back historically, your gross margin seems to have taken a structural step-up in 2023, but I believe this corresponded to the team moving a bigger part the volume manufacturing going through your more efficient low-cost Malaysia facility. And as the team has continued to scale volumes higher to Malaysia, since then, right, the increment that you've been able to drive incrementally higher margins on these products, and that continues to be a gross margin benefit.

Looking at your strong gross margin results for June and for the September outlook, like how much of the incremental gross margin improvement is coming from the volume mix to Malaysia and the increases there? Or could it be product mix, new product introduction upgrades, I know just incremental pricing increases on your systems? And maybe which of these dynamics is going to be most influential in driving you to your mid-50s sort of new long-term targets?

Yes, Harlan, let me start just because and I know you want to get to the quantification, I'll let Doug do some of that to the extent that he can. But I just wanted to point out, when we look at the tremendous operational execution, and I refer to it as operational velocity inside the company, I wanted to just make sure it's clear we have been able to execute to what have been really accelerated customer demand because of what I see as a strategic asset in our global manufacturing footprint. -- a global supply chain footprint.

We have factories in Oregon, in California and Ohio, in Malaysia and Taiwan and Korea and Asia. And really, as we've looked at this tremendous growth period we've gone through and expect to continue to go through, we've launched that full scope of sites and supply chains. And what's really helped us is that they're not all interrelated, and so they're not all being driven by the same demand. And so in that way, we can both get what we need when we need it and also at the prices that we needed. And so there's an element of really being able to leverage this global capability. I think that's somewhat unique in how Lam has driven our operational structure. And I'll let Doug talk to the second part of your question.

Yes,Harlan, a lot of the uptick that you're seeing margin has come from exactly what Tim just outlined. On top of that, we've got new products coming out every single year. theoretically adding more value to the customers and driving improving profitability. Clearly, that's going to be our ongoing objective.

Clearly, we're always working to get fairly paid for the value we're delivering to the customers. We're absolutely working on that. And then, yes, a lot of it has come from operational efficiencies, close to customer strategy, all of that were conscious that we've outlined over the last several years and have been talking about.

I appreciate that. And then on advanced packaging, you came into this year with a view of greater than 40% growth. You upped back to greater than 50% growth last earnings. Now you're looking at 70% growth today, right? Is the increase in the outlook due to HBM or 2.5, the 3.5 SoIC advanced packaging transitions happening faster or is it customer just pulling in production capability from next year into this year, curious?

Yes. I mean, Harlan, it's just everything. I mean advanced packaging, I mentioned in my remarks, it's becoming quite a technical tool for our customers and for the industry to drive greater performance. So it's everything you just mentioned. It's 2.5D. It's in the foundry logic space, it's in HBM and I think that what we're excited about is, obviously, as it moves also into panel packaging, that's a place where Lam we feel like we've gotten out to an early start there, and we think that transition is very -- at very early stages but it's an important inflection point there as well. So I think just next few years, advanced packaging growth will be a little hard to predict because adoption is just occurring all over the place.

But our clear leadership, Paul, and I'll just remind you, in the TSV etch and the copper electric plating, I call it the drill until we just have really strong product offerings there. So as that goes, we just benefit extensively from our technical leadership.

The next question comes from Atif Malik with Citi.

I know you guys talked about doubling of NAND revenues and the context window or KB cash. There is a third-party trend forecasting a divergence in memory fundamentals next year, they're calling for an oversupply in NAND because of the NAND demand getting pulled down by weaker consumer and shortages to continue on the DRAM side, which is more driven by data center. Are you seeing anything in your conversation with the memory makers that are pointing to some sort of oversupply or a reversal in the NAND fundamentals for next year?

I think that it's -- as we've said on NAND, I mean, clearly, customers are right now progressing through upgrades to 200-plus layer devices. There's some greenfield this year. it's a ways out before there's a lot of greenfield coming in demand. So I think that, again, next year, we haven't -- we're still having conversations about how to continue to upgrade the existing installed base and get the the fleet up to kind of current state of the art in terms of NAND.

And so I think it's a little early on 2028. But our view right now is the fundamentals are still about the same for us. I think what I tried to highlight in my prepared remarks is the Lam story is a lot bigger than just NAM. And there's often this focus. But what we've done is we've successfully looked at these vertical scaling trends that are occurring in both DRAM and foundry logic. And we've applied all of that learning and expert that we have from 3D NAND into those. And those are the basis for a lot of the wins that I was talking about in my remarks.

And I think that's a trend that continues into 2028 on as well. So you've got NAND and then you've got DRAM and foundry logic as well. And I would point out, we said that we believe 2027 looks like a great setup, not only for the industry, but for land. And that's an environment where next year, we still see DRAM being the fastest grower. Foundry Logic being the second fastest grower and NAND being third. And that's exactly the setup that we came into this year on. And clearly, our results so far in 2026 are quite good.

So we think even in that environment, LAND can do extremely well.

And then Taiwan was a record revenue year. Can you just talk about your foundry share gains at 3- and 2-nanometer.

Sure. I mean I can't tell you specifically. Obviously, in some of that gets quite close to a single customer. But look, it's back to the things that we've talked about. As customers are shrinking and they're moving to gate all around. It's the verticalization of the transistor structure. It's the focus on things like RC performance.

And if you go back and look at our transcripts from the last number of calls, we've been talking about things like low-K spaces, and we talked about the importance of patterning edge as features become ever smaller and taller because of EUV patterning and device shrink and so I would just say anything that's related again to something becoming higher aspect ratio, it requires etch -- if it has to do with RC meaning metallization resistance or dialectric capacities. Those are areas where Lam's new ALD tools where our new tools like Akara are doing extremely well, not just in Taiwan, but really at every leading-edge foundry logic customer around the world because -- these are unique capabilities built into our newest tools and they're doing great at the customer.

The next question comes from Jim Schneider with Goldman Sachs.

I was wondering, as you look at the growth rates. The industry has gone up post in 2026. How would you had to cap looking at mid-27 where you could see a similar, better or worse growth rate relative to this year?

Yes, Jim, we're not going to get into talking specifically about next year, at least not numerically I would tell you, though, that as we look at kind of what's being invested in, the industry is still meaningfully undersupplied, right? You've got clean room coming online over the next, I don't know, 12 months and beyond, frankly, and all that will lead to incremental opportunities as we get into '27. It's too soon for us to put quantification around what '27 is going to be.

But it looks like it's going to set up to be a pretty darn good year, Jim. I guess I'd just leave it at that.

That's fair enough. I understand. And then maybe just as a follow-up. You mentioned pricing being 1 of the factors to promote performance in the quarter. Can you speak to some of the factors that drove that? And do you see opportunities for further pricing actions in the short term, for example, like-for-like pricing pieces even which on the same program, the same stable project?

Jim, I mean, we're always working on getting fairly paid for the value we're delivering last quarter was no different than it ever has been. Pricing is always a component of what's been going on in addition to operational efficiency, that close to customer strategy I talked about -- all these new products that we're bringing out, delivering better gross margin because it's solving more difficult technical challenges. All that contributes to what you're seeing us deliver in gross margin. And frankly, we will strive to continue to expand gross margin to that mid-50% level. We're going to work on all of those stuff.

The next question comes from Srini Pajjuri with RBC Capital Markets.

Tim, on your WFE comment about $1 billion I think you said -- you alluded to maybe further upward bias for the year. I'm just trying to get a sense of what your lead times are? And in case if there is more upside, I guess, in the second half of the year, how well positioned you are to be able to supply to any potential upside?

Yes. Sorry, that might have been poorly worded in the remarks. It was -- our previous quarter's guidance was $140 billion with upside bias and that upside bias played out to get us to $150 billion now. So this outlook was in the $150 billion range. We didn't say upside bias for this this current outlook. But to that extent, I mean, your second part of your question about what capability do we have? I mean I know we were thinking one of the questions might be, how did you go to from $140 billlion to $150 billion when you said it was clean room constrained.

People find ways and the demand is very strong. And so people have squeezed out a little bit of extra space. They've resolved bottleneck tools. We work with customers on if we happen to be the bottleneck tool from a throughput perspective in places, we work with customers to resolve those and that sometimes frees them up to spend a little bit more to resolve other bottleneck tools. So that's kind of the $140 billion to $150 billion.

From this point forward, as you said, lead times are challenging, but maybe referring back to the answer I gave about our strategic global manufacturing supply chain. Our team is doing a phenomenal job, a heroic job, I think, responding to urgent customer requests and so when those do come up, we've been able to meet those needs. I think as we move through the second half of the year, that becomes more and more built to see anything further in this year as true surprise upside.

And that's why the discussions are now out in the '27 and beyond to make sure that as new fabs come into play, this is my comment about visibility. As those new fabs are opening up, customers want to make sure they have secured the tools they need from land to and so those discussions are taking place that lead time or beyond.

And then my follow-up, maybe on gross margins. Doug, pretty impressive gross margin performance despite the fact that China declined pretty meaningfully sequentially. So I'm just trying to get a sense of what you're seeing in terms of China overall demand. Are you expecting, I guess, China to recover in the next few quarters, I see you were deferred revenue balance went up a little bit. So I'm just trying to get a sense of how to think about China going forward.

Srini, I still think China overall WFE is flat to slightly up, similar to what we said before. I think quarter-by-quarter, you'll see some lumpiness to it. right? But our view is still largely the same. I would just also point out a comment that I made in my script and and maybe that we're going to continue to see is understand in that China region, you also have the global multinational customers with fabs in China showing up in that number at 26%.

And in the June quarter, those global multinationals in China actually grew somewhat while the indigenous Chinese customers declined. It won't surprise me if that's a similar trend that we see as we go through the latter part of the year as well.

The next question comes from Vivek Arya with Bank of America Securities.

This is Michael Mani on for Vivek Arya. My first question is on manned. So it seems like the company is pretty close to realizing the $40 billion upgrade opportunity faster than expected. But as you've described in the past, that's not so much of a static opportunity. Like whatever has been upgraded to layers eventually has to migrate to 300 layers and above, which could trigger another wave of spending for NAND where are we in that kind of second phase of upgrades?

And is there a way to kind of contextualize how big that opportunity could be relative to the initial $40 billion upgrade opportunity you saw in the last couple of years?

Yes, it's a good question. We've said that it is not a static thing. And in fact, as the industry if we look at this year, we made a comment. It's a combination of both upgrades plus some greenfield shipments, and that's kind of going to characterize the next couple of years. I mean, most of that $40 billion we had previously said would likely occur -- and upgrades would likely occur before the end of 2027 but then as you pointed out, it kind of all starts again.

The key is since greenfield additions have been made in that period of time. The next time it rolls through, you go from 200 to 300 plus or 400 plus, it's an even bigger installed base. And so while we have not -- we haven't quantified that, but it's a good action item for us to get to you into the future. But you can imagine that as you go -- we've described from 200 to 300 to 400 to 500 layers, I made -- I said that our SAM will double from the 200-plus layer to the 500-plus layer on a per wafer basis. And that's a combination of longer process times to process the taller stacks plus additional tools that get added in to deal with all the complexity of all that stacking. And that's where Lam's opportunity lies helping address the complexity of stacking the 500 layers and beyond for customers.

And my follow-up, I wanted to ask about DRAM. So I think a lot of the strong outgrowth and have seen over the last couple of years in share gains has been mainly driven by HCM, which are TSV drilling and electric plating tools. But could you talk about your share opportunity in traditional conventional DRAM, especially as you move to new nodes like 1 and 1 gamma given that right now, that seems like where most of the industry capacity constraints are over the next couple of years?

Sure, sure. I mean it's -- obviously, as you mentioned, HBM has been tremendous for Lam from the standpoint of the position we have in the TSV formation and other elements of the HBM process itself. But I mentioned a couple of improvements as DRAM performance at the device level continues to push forward into future nodes. They're incorporating more processes that are associated with higher performance. It's low pay. It's also introduction of more EUV layers, which pulls in and makes Lam's patterning etch tools that much more critical. And so we're seeing wins across very conventional for types of devices.

In my prepared remarks, I talked about if you're trying to build very high-performance DRAM, you start to worry about things, as I mentioned, like the diffusion barrier performance and the ex-op layer performance and that's an area where today, we hold a very strong leadership position in advanced leading-edge foundry logic. And the reality is, as you try to push DRAM performance ahead, it starts to look a lot like leading-edge foundry logic. And I think that's where the real strength of Lam's portfolio is that, in many ways, the performance requirements across all 3 devices as we see more vertical scaling, more performance, they're all converging.

And I think that a couple of years from now, we're going to look back and say, "Hey, everything kind of became 3D NAND like, much taller, much more complex acquiring higher performance tools. And right now, I think DRAM is seeing that. So it's -- we are winning in conventional DRAM, but it's related to the strength of the device, the patterning of the device, the materials that are being introduced and I think that continues. And then you layer on top of that, if you do HBM, it's even better for us.

Yes. SP1 The next question comes from Melissa Weathers with Deutsche Bank.

I wanted to bring it back to a framework that you guys brought up on 1 of your calls last year. about the relationship between WFE spending and total data center spending, especially with the market looking at potential slowing of AI spending or more efficient models. Is there any way you can help us think about your view of WFE in the context of potential slowing AI spending? And how do we think about the resilience of your business there?

Yes. Listen, Melissa, I think as we look into next year, the fact that the industry is undersupplied this year is going to roll into next year. So we feel great about what's going to happen with WFE. Yes, that metric, we about the $100 billion data center CapEx equating, if I remember the number to roughly $8 billion in WFE. That was probably a little bit of a low estimate as we sit here today. probably trending, I don't know, $1 billion or $2 higher. But that clearly, at the end of the day, is what's driving demand at the end of the day, the hyperscale investment is trickling all the way back to WFE, and that is absolutely a driver.

The numbers are probably a little higher than we had talked about with middle part of last year.

Perfect. And then on the supply side, I'm sure you guys are getting more visibility from your own customers. But I was wondering, Doug, you talked about higher inventory turn. What kind of like partnership and visibility are you giving your suppliers to make sure you can bring on capacity for this strong ramp?

All the same visibility we get, Melissa, is propagating its way all the way back to our supply chain and even a couple of layers deep in the supply chain. So we're doing everything we can to make sure we're not going to be the bottleneck I would tell you, it's a lot of work. We've got a lot of things we're expediting and working our way through. We'll continue to do that. But that part of the company is doing an extraordinary job managing this for us.

The next question comes from Stacy Rasgon with Bernstein Research.

For the first one, Doug, I know you said '27 is going to be kind of a remarkable year. I want to ask you to give us a number. But I mean, are clean rooms really the limiter to how big '27 can be like. I mean if clean rooms were unlimited I think you guys are growing, you guys think is growing from like [ 110 to 150 ] this year sets mid-30s. If clean rooms were unlimited, like is there no question that we could grow that much next year even more. Is that where the demand is the demand note thing like that?

Yes, Stacy, again, I'm not going to put numbers on it right now. It's too soon for us to do that. But when I look into what's going on in the industry, I don't know, when you just look at the bigger customers, there's probably 8, 9, 10 new fabs coming online between now and the end of next year that's going to enable the reception of more equipment.

So we're excited about where this is going. I'm not going to put a number on it quite yet. We'll do that as we get further down the road here.

Got it. For my follow-up, let me try one more way. Again, I'll try to answer without having to put numbers on it, but if '27 is going to be that good. Do you think the setup is good enough where, at a minimum, we could see sequential growth from here until the end of '27? Is the setup and I guess, the availability of space enough that at least you could be willing to sign up for something like that?

Yes, maybe, Stacy, when you look at it, this doesn't all come on in any 1 quarter. So it comes on kind of bit by bit. again, not going to guide you quarter by quarter through next year. But I feel incrementally do at about each successive quarter as I sit here right now. And as we get a little bit closer, maybe I'll give you a little more color.

The next question comes from Krish Sankar with TD Cowen.

To Doug, you mentioned about growing inventory but the inventory management is still lean. When I look at prior cycles, this is the time where you should be building a lot more inventory given the huge WFE potential ahead. I'm just wondering, is this a new norm for inventory management? Or is this more supply chain being constrained on capacity? And if you can just try and that to what you ate will be helpful, too.

It's just efficiently managing the building inventory. We are absolutely growing inventory. I think it grew $300 million or something last quarter. but at the same time, turns improved. I think you're going to continue to see us think about it in the same way. We clearly are going to need to build inventory as we get into revenue growth like we're seeing but we'll also be focused on efficiency and making sure we're managing the cash for the company well.

Got you. And then a quick follow-up on gross margins. I thought you mentioned that some of the strength in June came from pricing, too. I understand product mix might have an impact. But if you assume current level of volumes is 50-plus percent the right baseline for gross margins to assume?

You mean as we go forward, Chris, is that your question?

Yes Yes, at these volume levels yes.

Yes. No, I think so. Listen, we're in that 51%, 52% range right now. I think we can continue to deliver that in the near term.

Next question comes from Blayne Curtis with Jefferies.

I actually wanted to ask on pricing. It's been kind of an investor theme, and I'm kind of just curious what you're seeing like-for-like pricing in the industry and you.

Yes, Brian, I'm not going to talk about like-for-like pricing. When I described the solid gross margin that we saw last quarter, I talked a little bit about pricing, about operational and scale efficiencies and about product mix, all of that contributed we're always doing everything we can to get fairly paid for the value we're delivering. That's true today. It's been true for, I don't know, a decade bomber, but we're working on all of those things, Blayne.

Got you. And then I want to ask you in terms of just your CapEx plans. And in terms of adding this back in capacity, there's a lot of talk of WB 300 billion. Just kind of curious what are you starting today and like what could that spending be over the next year or 2 years?

Yes. Blayne, I still think we can manage the company for 4% to 5% of revenue going towards CapEx as we build out lab infrastructure. We're making big investments in labs, by the way. This isn't just manufacturing capacity. We're also very focused, Blayne, on, I don't know, I think about it as footprint in densification, getting more output for the same square footage that we have in manufacturing. The company is doing a really nice job at that. We probably haven't talked enough about it. But we're making the investments we need to support where we believe the customers are going to be -- we'll be ahead of that.

Yes. I think if you don't mind, I'd just add Doug's comment about labs. I mean if we think about CapEx and investments and long term for the company, we sit in a position where as etch and depth intensity is growing and playing a much more important role to kind of our future road maps of our customers.

We see a lot of opportunity for new product development to accelerate SAM expansion even further. And so labs play a big role in that. Tooling for those labs plays a big role in that. And so we're always the opportunity, we will invest in the company to accelerate growth.

The next question comes from Vijay Rakesh with Mizuho.

Tim and Doug, just a question on the -- when you look at the DRAM side, obviously growing very nicely. But when you look at HBM and Obviously, it looks like your capital intensity starts to pick up significantly for Lam. Any way of kind of sizing the opportunity there for every 100 wafers, whether it's HBF with PSVs or 440 -- and a follow-up.

Yes. Vijay, we haven't put numbers around that. But clearly, I mean, relative to your HPM question, as the stack gets taller, process times take longer, you need more equipment. And clearly, we're enabling a lot of that with the things we do around the TSV. But we haven't put specific numbers on it, and I'm not prepared to do it right now.

Got it. And when you look at the -- when you look at the Lam revenues this year 2026, looks like you're somewhere in that $30 billion neighborhood on $150 billion WFE. So about 20% share back of the envelop you talked about a 30% SAM. When you start to kind of scale and bridge into that, I guess, what would be the time frame?

Yes, Vijay, what we talked about, I got to take you back to the Investor Day and the beginning of 2025. We at that point, we're talking about our SAM extending from the low 30% of WFE range into the high 30% range. As we sit here today, we're probably trending already to that high level. we're, I don't know, I guess, 36%, 36.5% this year, something like that. So we're progressing quite nicely. I'm not exactly sure the math that you were doing, it might be confusing a little bit of the CSBG business in there as well, which isn't purely WFE. So maybe we can take that off-line.

Operator, we will take 1 more question, please.

Okay. Our final question will come from Shane Brett with Morgan Stanley.

So my first question is, you talk a lot about etch and depth, but you've gained quite a bit of share in cleaning over the last few years. Could you talk about the roll cleaning plays in your SAM expansion? Is there a world where you actually become the leading market shareholder for clean?

Yes. I guess we're still focused on the 3D scaling that's occurring in all these devices. We sometimes forget about clean, but you're right, it's a very important business for us and one that has grown nicely. And I think, again, as customers focus, we talked a little bit about it purely cleaning, but we talked about the selective edge process in surface treatment and clean kind of plays into that as well, although I'll be in different tools.

But it's the focus as you are getting to more and more difficult technologies, the need to control surfaces, the need to perform cleans, eliminate defectivity, all just are becoming much more important to the customers. And so we've seen our performance in clean where we are really focused on the high-performing critical cleans we've done extremely well. And so I don't know about the #1 player because there's a lot of it to go look at that market. But in terms of critical cleans, that, of course, would be our objective is to help our customers with all of the processes.

Got it. And for my follow-up, apologies if this is a little repetitive to prior questions. But I want to dig into DRAM. -- as your DRAM revenue may double this year, but you mentioned earlier to a question that DRAM will be the fastest driver next year. Just how big could DRAM be for you in 2027 as a percentage of your system revenue and kind of how much of that growth could be based on share gain?

Yes, Shane. We're not going to put numbers around next year yet too soon. But what Tim said is as we look into next year, we expect the growth drivers next year to be largely the same as they are this year led by growth in DRAM WFE followed by leading-edge founder and logic followed by NAND. We see everything growing into next year. And frankly, Shane, when we think about the guide for next quarter at $8.1 billion, I think you're going to see everything growing next quarter as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Bettinger for any closing remarks.

Yes, I would just say thank you all for joining our call. We're very excited about what's going on in the industry right now and our unique position in it. As we talked about, both Tim and I, we're looking into what we believe to be our third consecutive year of outperforming growth in WFE because of the intensity of etch and deposition. And I wouldn't change our position for anybody in the industry. Our execution has been great, and we intend to continue delivering that. And we look forward to seeing all of you guys upcoming NDRs and conferences. And with that, operator, we're all concluded.

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

I'm Vivek Arya from our semiconductor semi-cap equipment team. I'm really delighted to have the team from Lam Research join us for this fireside and Doug Bettinger, the Chief Financial Officer. And as always, I'll go through my questions, but please feel free to raise your hand if you would like to bring something up. Before we start, Doug, I believe you have a safe harbor.

Yes. I need to start with the safe harbor to keep my legal team happy. Let me give me a couple or a minute here. Today's discussion may include forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. Additional information concerning factors that could cause results to differ materially from those forward-looking statements can be found in the risk factors disclosed in our public filings with the SEC, including our most recent 10-K and 10-Q. And I'm done.

Wonderful. Thank you. So that's the exciting part of that.

I know people are always excited to see how fast I can read that.

So maybe just let's start, Doug, with kind of a state of the union, right? Since the start of the year, we have seen Lam consistently the wafer fab equipment market this year. So from started in the mid -- low 130s, now it's kind of over 140, right, plus.

That we said.

Before this year. What do you think have been the incremental drivers of growth since the start of the year?

I think the first thing to understand is the industry, from our point of view, is constrained by clean room space availability. I think you're hearing that statement from everybody. And you're absolutely right, Vivek. We started the year thinking WFE was going to be 135 is a specific number. On the last call, Tim and I updated it to 140, perhaps with a bias to a little bit of upside.

And what's changed is it's been across all segments of the business. There's just a little bit more clean room, maybe projects got pulled in a little bit. One of our customers bought a fab and was able to take equipment a little bit sooner. Everybody is trying to figure out in this constrained environment, how to get a little -- how to squeeze a little bit more out of what's there. And that's exactly where we saw the upside.

It wasn't any one specific thing. Just a little bit everywhere. And I'm not saying there's going to be a little bit more, but everybody is working on trying to get a little more output. That's what showed up.

Is there a way to think about what the unconstrained WFE might be this year, like if there was enough clean room space.

Yes. Listen, everybody wants to know the answer to that question. And frankly, I don't have a specific number for you, except I would tell you, the industry is undersupplied right now. You're seeing it in memory pricing, absolutely in profitability. advanced foundry is constrained, advanced packaging is super tight. I don't have a specific number for what unconstrained WFE might be.

But what I will tell you is this bodes pretty well for what WFE is going to be next year because this is going to roll into next year as projects come more available into '27. I think it's going to be a pretty darn good year in '27 and maybe beyond that. But I don't have a specific number for you, Vivek.

Got it. Okay. If you look at visibility, right, that seems to be extending out, right, over the next number of years. Is there a way to quantify, Doug, what is kind of your usual unit of visibility and what it is right now?

I think what I would tell you is, right now, given the environment I described, there's very deep conversations occurring with every one of our customers. About, okay, what does the next several quarters look like? What do you have? What could push or pull in or out and so forth based on these clean room projects that are underway.

And then the conversation almost immediately transitions to, okay, what does that mean for next year? Because at the end of the day, our customers don't want us to be what constrains them, and we certainly don't want to be in that position either, right? So okay, that project looks like it's showing up in '27 in the second half. And so what might that mean for what do you need from us? It doesn't necessarily mean I've got a purchase order for next year, but the robustness of these conversations is as strong as I've ever seen it, frankly, in all the time I've been in the industry. That's what's happening.

And it's pretty easy to understand, okay, that new fab project is scheduled to be completed next year. And so we can also do our own assessment of, okay, the customer is saying this, and we look at it and say, yes, okay, that generally makes sense. That's what's happening right now. And then it follows on, obviously, for us, then we're going to go talk to our supply chain partners. We're going to plan our own physical bricks and mortar consistent with what is the customer saying they're going to need from us. That's what's happening right now. And like I said, the richness, the conviction in these conversations is as strong as I've ever seen it.

Got it. And the fact that it's the data center end market that is driving.

It's AI.

It's AI, right? Versus in the past, many of the growth cycles have been more consumer-driven, right, whether it was PCs or phones and such.

It was Internet, it was mobile, yes, all of those things. And now AI is layered on top of it. And frankly, the longevity of this to me feels like it's here for quite a good amount of time.

Got it. Okay. Because it's AI-driven, where everyone wants to build as soon as possible, do you think there is an acceleration in how quickly customers are willing to adopt the high end of the stack, so to speak, right, your leading-edge technology, right, versus in prior times?

Where demand is showing up from these AI compute -- I mean, these accelerator chips are very, very big die, maybe not the most advanced node, but pretty close. And so that generally means it's the most advanced equipment. It's the newest capability required to deliver these very advanced features, very small high aspect ratio features and things that you look at. It's high-bandwidth memory. It's a lot of DRAM needed in the compute infrastructure. And it's -- NAND is also being to show up, right? You got to store these tokens, not just generate them. And so -- it's showing up everywhere, and it's primarily showing up at a pretty advanced process node, which generally needs our most advanced equipment.

Okay. In terms of Lam-specific outgrowth, right, Lam has been a market share gainer. I think in the past, you said that the goal was to go from kind of the mid-30s WFE SAM towards the high 30s. Where is Lam in that transition? And do you think your SAM kind of expands?

It absolutely has been and will continue to be. I mean that's the unique story about our company. Everybody benefits in equipment when WFE raises. That's great, rising tide lifts everybody. The unique position we sit in, and maybe we're a little bit lucky, but also we're executing extremely well. You look across the totality of advanced process nodes in foundry, in logic, in DRAM, in NAND, things are inflecting in the third dimension. Right?

High-bandwidth memory is a 3D structure. 6F squared going to 4F squared is a 3D structure. 3D DRAM is being worked on is an even more 3D structure. The NAND stack keeps growing. That's a 3D structure. Gate-all-around is an advanced 3D structure. Advanced packaging is a 3D structure. When things inflect in the third dimension, etch and deposition intensity grows. That's all we do. And so 1.5 years ago, we began describing this growth in our addressable market. And what we said back then in early '25, we did our last Investor Day, then we were coming off a year where we address low 30% of overall WFE. So call it, $0.32 of every dollar spent on WFE was spent on etch and deposition.

We said we see a path over the next several years for that to grow to the high 30s. That's what you were just describing, Vivek. As we sit here today, it's in the mid-30s, right, 1.5 years later, after we said low 30s, we're already in the mid-30s because of the evolution of these architectures. This is going to continue.

There's a couple of cool data points, I think, from my point of view, anyway, cool data points where we said in foundry from 5-nanometer to CFET, our SAM per wafer will double because of the intensity of creating this very complicated CFET structure. Gate-all-around is a step towards that. Backside power is another step towards that. These are just examples of what I'm describing. So we sit in a unique position within the equipment sector in that everything we do is growing. That's wonderful.

On top of that, the strength of our product portfolio has never been stronger from my point of view and from the executive team's point of view. And so as we see this growing SAM, based on our products that are coming out like Akara, like Vantex, like the ALE tool, like Halo, we call it, we believe we're going to win half of this growing SAM, right? So low 30s going to high 30s, we believe because of what we're able to deliver, we're going to do really well in winning that growing SAM.

That's the unique story about Lam Research. Everybody in equipment is going to do well over the next several years. We're going to do even better. We outperformed WFE last year. We're going to outperform it this year. We're going to outperform it for the next several years based on what I see. And what I've been pointing out actually, I think people that know the company know that NAND flash is our strongest end market. That is growing a good amount, but growing slower than the other leading edge process nodes. And yet we're still outperforming with NAND still sort of on the come line.

So I feel great about where we're positioned, about what we've invested in, about how we're executing. We're going to keep delivering on that.

Got it. I think you peaked at my next question. So let me ask it again, which is...

I get excited about.

Yes, I can see. So despite NAND having a relatively slower year, right, versus DRAM, foundry logic packaging, what do you think is helping Lam outgrow? I can only imagine it's mostly share gains, but people do associate Lam more with NAND than with DRAM.

So despite NAND being a softer year, what do you think is helping Lam outgrow the market? And what if NAND is softer next year also, can you still outgrow the market?

Listen, everything I just rattled on about all of these 3D architectures is what's happening. And the strength of the product portfolio is what is enabling us to win a good amount of that. One thing I'll point out that, yes, people think of us as the NAND company or the memory company from an equipment standpoint. Last quarter, 54% of our systems revenue was in foundry. The quarter before, 59% was in foundry.

So yes, I love our memory strength. I love our memory customers immensely. But we've done extremely well in advanced foundry and logic because of investments we made 3 or 4 years ago. We saw some of these inflections coming. We knew we were going to be really well positioned to win, and we've delivered on it, right? It's gate-all-around. It's backside power that really hasn't meaningfully showed up quite yet. It will. It's advanced packaging where we do the through silicon via steps. I call it the drill and fill. We etch the silicon to create the space for the interconnect. And then we have a wonderfully strong electroplating business. That's the fill, the drill and the fill.

We own a good amount of that across the totality of the industry, HBM, CoWoS, Foveros, all of those things we enable with the TSV. And we do other things in advanced packaging, but we're just really well positioned.

On the memory side, Doug, if we were to think of a scenario where, let's say, if memory pricing goes down next year for whatever reason, do you think your memory customers would still be as incentivized to put money in all these fabs, build all these clean rooms? Or do you think their thinking is very sensitive to the pricing of memory?

I think everybody is being very purposeful about investments that they're making. And honestly, if you think about everything around AI, there are many things that are constraining the ability of everybody in the industry to supply of true end demand, be it power, be it data center, be it leading-edge foundry being high-bandwidth memory, all of these things right now, the demand is beyond what supply is able to support.

And so I see everybody legging their way into trying to step that forward to a certain extent, but also with a clear eye on profitability. That's important. And so as long as everybody is as profitable as they are, they're going to invest, and they are investing.

Got it. And one thing we have seen is several of these memory companies starting to do more long-term agreements with their customers. So I imagine that...

Good for everybody.

Yes, it kind of helps extend that visibility. So has the nature of their discussions with their suppliers, i.e., Lam, have they changed because now they are on the hook to provide and assure that assurance of capacity for the next few years?

I think that's probably a part of what's behind these very rich, robust longer-term conversations that I was describing earlier in our talk, Vivek. I mean, like I said, confidence in these conversations is very, very high. And this is probably certainly part of it.

Got it. On DRAM, how is your content changing from HBM 3 to 4? And I saw yesterday, Samsung talk about HBM 5 as well. So how is your kind of content evolving along these different HBM generations?

Yes. As the stack grows and as the dimensionality of the holes we're drilling gets tighter, the need for equipment grows. Obviously, right, if you go from 8 to 12 to 16 die you're putting together for the same construct, you need more equipment.

And again, we own the TSV. We do most of the TSV for everybody in the industry. And so that's a big part of what's showing up. And then you layer on these die get bigger, the trade ratio changes, you've got the process node in and of itself going from 1 beta to 1C to 1 gamma and beyond, our SAM grows just in the process itself, and then you layer HBM on top of it.

Got it. Does your opportunity change, Doug, if memory goes from kind of more conversions and upgrades towards more greenfield? If you could kind of walk us through, does it make any difference to Lam?

You're really asking a NAND question now because largely what we see happening in NAND are conversions, right? The installed base is converting from one process node to the next is what's happening right now.

I'll take you back to 1.5 years ago, we described a view that the industry would need to spend $40 billion over several years to go through these conversions. On our last call, Tim updated that statement to be, okay, that $40 billion, we believe, will be largely complete by the end of next year. So it's happening sooner. And so at the point that you get through, okay, things have been converted, you're going to need wafer capacity added.

We're happy with conversions. We get a bigger share of spending. When wafer capacity gets added, the customer base will need to spend more. Our share is still quite strong. So we're almost agnostic between one or the other. We're here to support customers in whatever makes sense for them. Right now, that's largely oriented around conversions. But at some point, you're going to need a little bit more wafer capacity.

Do you think the allocation of new clean room to NAND kind of lags because most memory companies are a lot more profitable in DRAM. So it makes more sense for them to allocate DRAM.

That's what I observe happening, whether people are consciously saying this or not. Right now, clean room is a constraining item. Three of my customers do both NAND and DRAM. And to the extent that there's clean room constraining things, what are you going to invest in? Well, you're going to invest in where the highest profit opportunity is. And right now, that's DRAM. NAND is getting closely caught up, though, and profitability is quite attractive in NAND right now. So NAND will accelerate at some point. But right now, DRAM is getting the priority is what I observed happening.

Got it. The fact that over time, more clean rooms -- if, let's say, there is a lag with which clean rooms get allocated to NAND, does that extend your growth cycle kind of further out, right, versus right, some of your peers who might be more DRAM exposed? Is that?

No, I think so. But listen, everything is tight right now. And so that's going to extend the investment profile until these constraints start loosening up, which I just don't see happening in the near term.

Okay. And then within the clean room that customers have, do you see them upgrade their tools faster? And I'm talking more DRAM rather than NAND.

Listen, there's always upgrades that happen. That's a high-return way to get the next-generation tool capability is if there's an upgrade path for a tool, almost always the first priority is going to be do the upgrade before buying new equipment.

Okay. What do you think has helped Lam do so well in foundry logic, right? You mentioned over half the business was in foundry the last 2 quarters.

Is it all share gains? Is it just that the pace with which technology is rolling out? You mentioned the change in transistor geometries and transistor forms. What has helped Lam?

Yes. It's back to what I tried to describe earlier. Things are inflecting in the third dimension. In the most advanced foundry, you have a FinFET structure going to gate-all-around. And if you look at the little pictures of this, there's these nanosheets that need to get created. They get created by depositing material and then etching it, sometimes selectively etching it. So it's a different way of etching. You're doing it sideways. That's etch and deposition.

So our SAM grows, the opportunity to sell more equipment grows because of the technology inflections that show up. So that's one statement, right? There's ALD steps in there. There's selective etches in there. There's always conductor and dielectric etch in there. It's just -- it plays to the strength of what we do. And the product portfolio is very strong.

We are the unequivocal leader in conductor etch in this industry, unequivocal by a lot. And so when you see that showing up, that helps. And then you layer on top of that advanced packaging. Again, back to the TSV, these are 3D structures. It's just what we do.

Got it. One other very key part of your business is the customer service and business group, right, CSBG.

In many ways, Vivek, it's my favorite part of the business model is the customer support business group.

Right. And now over $2 billion, right, on a quarterly.

One last quarter.

Why do you think the growth rate -- when do you think the growth rate there starts to converge with your tool business? Or it is -- that's just a natural consequence of this is kind of a long tail kind of secular, right, embedded base business as opposed to something that's exposed to new tools?

Yes. So let me unpack it a little bit for those that might be new to the story. The customer support business group, we call it CSBG, 4 components of that business. It's upgrades, it's service. It's spare parts, spare parts is a pretty large component of it. And so when you think through why is it so strong right now, utilization in the industry is very high, right? It's basically running at 100%. So you think about spares and service, the consumption of spares and service is modulated by the number of chambers in the field as well as utilization. Utilization is 100%, can't get any higher.

So in the March quarter, that's why it grew so much. 100%, you can't grow beyond 100%. So those two things in the near -- the more near term are going to grow, but not as much as you saw in the March quarter. So that's why I tried to pull people back a little bit. Relative to what's going on. The place we're innovating in this is what we call advanced service. It's using equipment intelligence and cobots to deliver service in a different, more predictable way that, frankly, customers like quite a lot.

So that portion of -- when you think about service, that drives incremental growth on top of everything else. But I love this part of the business model. And in fact, a lot of these meetings I've been doing today and last week, people don't ask about this part of the business. It's 1/3 of the business. Very profitable, very recurring, right? Fabs are always running, which means they consume spares and service.

So like I said, in many ways, to me, as the CFO of the company, this is my favorite part of the business model. It just keeps -- it keeps running. People are often surprised to hear that our tools literally will run for decades. The Reliant product line I didn't talk about, but this is the part of the business where we're selling tools that have been around for a long time. It used to be refurbished tools. Today, there's almost no refurbished because nobody has given up equipment, but it's selling older model equipment into fabs.

That's a really good part of the business model because the tool was designed a long time ago, requires not a lot of R&D. We're just building the same tool that we built 10 years ago and selling it. So you see that in the analog space, in power, in CMOS image sensors, a lot of the business that we have in the China region is the Reliant product line, great part of the business. So anyway, when you put this all together, -- it's quite profitable. It's quite cash generative, and it's very recurring.

Got it. I know we have had this discussion before, but do you think you would ever feel comfortable giving like a backlog, right, for -- because if this business is to be rated as, let's say, a SaaS, right, subscription type business, then people would also love to know what is the backlog?

No, we don't give backlog.

Okay. answered.

Listen, I think the thing everybody when you ask me about backlog, you want to know the visibility we have into the business. I already described what's going on there, right? Industry is constrained. Industry is going to grow again next year, right? I mean the nature of the conversations showing up are very robust.

You don't need backlog to hear me describe that. And I'm a pretty conservative guy, generally speaking. I'm talking as optimistically as you've ever heard me if you've listened to me talk for a while. Because I've not seen it as rich as it is right now with these conversations.

Right. One thing that I think Lam has perhaps said or some of your peers have said is that there is the potential for just fab equipment to grow faster in '27 than in '26. Is that still a reasonable expectation, do you feel?

I think '27 is going to be a pretty good growth year, again, because we're constrained this year, all of the unmet demand will roll into next year. Clean rooms will become more available. If you look at the totality of projects in the industry, '27 should be a pretty good year.

And do you think the mix changes in any way? Does it favor any one of the areas?

I think you're going to see continued investment in leading edge foundry. You're going to see continued investment in DRAM and you're going to see NAND begin to catch up a little bit to those other two.

Okay. One of the question that, Doug, as you've seen come up is, are semi caps extracting as much value as every other player in the ecosystem. And then we have definitely seen gross margins that used to be in the mid-40s have now come up, right, towards.

Into the low 50s.

Yes, low 50s. Do you think that's a durable trend? And how much more upside is kind of left in this margin expansion journey?

Yes. Listen, I think we're very focused on right now, making sure we're getting fairly paid for the value we're delivering. And that's not a new phenomenon. That's always been the case with our business. We're always working on that. And your observation is exactly right, right? For the first decade I was at the company, our gross margin was pretty consistently in the middle 40s. And then we moved into the high 40s, and we're now touching mid -- or excuse me, low 50s.

And we've got inflationary headwinds we're dealing with when you got oil above $100 a barrel, right? We fly stuff all over the world. You got to manage all of those type things that show up both for us directly as well as in our supply chain. We're dealing with a little bit of a headwind in customer mix, right? Some of the most profitable customers aren't growing nearly as much as the biggest customers who tend to get a little more favorable pricing, a little bit anyway. And so as you think through that, I went out of my way on the last call to say, listen, as we go through the year, we see these headwinds. We're working on efficiencies. We're working on pricing.

And so I said, keep gross margin right where it is in that 50-ish percent, 50.5% is what we just guided to. We're managing the headwinds that we see in the short term through a variety of things, including pricing.

Historically, WFE and semi CapEx have kind of grown in that 8%, 10% range. But here we are in front of multiple years of 20%, 25%, right, plus.

Strong growth.

Much stronger than before. How is Lam prepared, right, from an operational perspective, from a capacity perspective? Where are you seeing the constraints in your ability to kind of execute to that growth?

Listen, I think, again, also on our last call, we went out of our way to say, hey, we're building a second manufacturing facility in Malaysia. So that's part of this. We anticipated what was happening, and we're getting ready for it. Like I said, we are spending a lot of time with customers working on the demand signal they're providing to us such that we can then make sure that propagates back through our own supply chain. And so I don't want to say it's working flawlessly perfectly. When you build this complicated a product as we build, there's always things that you're having to expedite and work on and it costs money to expedite things.

And so we're managing all of that pretty effectively. It's not to say that it's easy. It's absolutely requiring a ton of time, a ton of effort to make sure every single component in the bill of material shows up when it is required and needed, and we're having to expedite lots of different stuff, but we're managing it pretty well. And I -- my team listens to me when I talk at these things. I want to thank the global operations organization at Lam Research. I know everybody that works there is working super hard on all of this stuff. And it's enabling execution that is extremely good for us.

Got it. Hypothetically, if next year WFE grows 35%, 40-plus percent, what would Lam need to do differently today?

We're doing everything we can do to make sure we are not going to be the constraining item in the industry based on the demand signal we're getting from our customers. So we're actioning everything that I think we need to do to be ready for what customers are telling us they need. And I'm not going to say that growth number you said is the right growth number. It's going to be a good year next year, but I'm not going to endorse that number necessarily.

Got it. China, should one just assume it kind of stays in this 25%, 30% exposure and that's just the easiest way to.

I think so right now. I mean the way we've described the wafer fab equipment spending in China is it's flattish to slightly up this year from last year. And as a result, as a percent of overall WFE and as a percent of Lam Research's revenue, it will decline because everything else outside is growing faster than that. So that's the way we think about China. It's not going away. It's just pretty steady.

Got it. On just kind of capital allocation. So I think the semi cap industry has done a remarkable job, although not always appreciated as much for kind of buybacks and returns, right, retiring -- actually retiring a big chunk, right, of outstanding shares.

How do you think about capital allocation? And is there a scope to actually target even higher dividend yields? Or you think buybacks are still a better way to use your cash?

Great question. Listen, our plans are to return 85% of free cash flow to shareholders. In the last several years, we've returned more than that. Underneath the covers of that, our intention is to grow the dividend on an annual basis. I think the last 3 years, we've grown it annually 15%. We'll grow the dividend again this year. I'm not going to apologize for the fact that the dividend yield has declined because the share price has gone up. That's a good problem for all of us.

I do look at that yield. I do benchmark it to everybody else in the industry. I want to make sure we're competitive with that. But then to get to the 85%, we supplement that annually growing dividend with share buyback, and that's still the plans of the company.

Got it. Any -- I know M&A is tough in the industry, but any places where you think there is a scope for kind of tuck-in acquisitions to...

I don't know. Over the years, we've done some small tuck-ins. And in fact, we did a panel packaging tuck-in that I'm super happy that we did a few years ago. But that's all that's left in the industry. The big stuff is in the rearview mirror. Large-scale M&A, I think, is in the past.

Terrific. Thank you so much, Doug.

Appreciate it.

Good morning. Thank you all for coming today. I'm Stacy Rasgon. I cover the U.S. semiconductor and semiconductor capital equipment sector, if you're at Bernstein. It's my great honor to introduce our guest, the President and CEO of Lam Research, Mr. Tim Archer.

Before I start, I want to mention if you have questions you'd like to ask during the presentation. You should have a link or QR code, I think, to the pigeonhole form where you can submit those. I will get them up here and we'll have time for Q&A at the end.

So semi cap. So after enjoying -- it's had a bit of a risk on already over the last several years, but the capital equipment industry has really shifted into overdrive recently as AI has gone mainstream. With the demand profiles that we're seeing, calling for at the end of the day, just simply more, more chips, more wafers, more tools. And in that world, the contributions from companies like Lam are becoming more important than ever. And to tell us all about it, it gives me great pleasure to welcome Tim to our session today. So thank you so much.

I have to say I've been super excited to sit down. This is actually my first session of the conference. And I'm glad it's starting with you guys.

Great. I mean, let's just jump to it. I mean let's talk about AI. I mean, clearly, I said it's created a renaissance in WFE. It wasn't that long ago that $100 billion in WFE was just sort of in this aspiration that was out there. And we've blown through that now, right? I mean we'll probably do -- I can't remember your numbers or something?

140 with the bia.

Yes. bias to the upside. And as strong as that is, I mean, look, it's a constrained number like we were short of clean room space. And -- just -- I mean maybe just at a high level to start off, maybe just talk about what AI has done for wafer and equipment demand. I mean, maybe by end markets like leading edge logic, DRAM, flash, packaging, even lagging edge. What has it done?

Yes. It's -- I mean, first of all, I agree with you on this point of this is a renaissance, and it's driven by AI demand that has really touched every segment of the equipment market, the devices and device markets.

I mean in semis, by the way, you could have owned anything. It's gotten so big, it's dragging everything along with it. It feels like.

I hope some are better than others, but I mean -- and I think that we'll talk a little bit more about the markets we're in. But as you said, AI, I think what's been most amazing about it is that it has driven performance across every device type. I mean, there used to be -- there would always be a discussion of what's good enough. But I mean in AI right now, more is more and so you want to have more leading-edge compute power at the foundry logic side. You need more storage. You need more memory, higher bandwidth, lower latency. And that's just created changes very rapidly to the architecture devices, how they're packaged, the materials that are used to manufacture the devices and so forth an etch and deposition focused equipment company. I mean it's a very exciting time.

And this time is different is always sort of a dangerous kind of statement. But I could make the argument maybe it could be. So I mean, like how would you respond to that? Is this just a function of just demand is overwhelming. Is that what's different? Is there something different about the types of things that, that demand is driving like as it relates to you guys, like, how would you respond to that?

Yes. I think as I was talking about I think what is different is this almost insatiable desire for and need for more performance.

I mean we've always wanted more performance in the space, haven't we?

Yes. But I think that in this case, it is really -- it makes the end product that much more capable in a way that I think is a little bit unique. It's always been there, but it is also quite unique that it's performance across all types of devices and including packaging. And I think that -- the other thing that's a little bit unique and maybe different is that we have visibility to these waves of demand. And so we've started in training and that drove certain performance requirements around certain types of devices and really accelerated this push towards more advanced foundry logic to get the compute and HBM to get that capability.

But now as we move into inference and then we move into agentic-AI and ultimately into physical AI, we see different parts of the market and different requirements. We clearly now see much stronger demand for NAND, for instance, than people had anticipated. Again, as you start to make this transition from training to inference into agentic. We've seen the same thing with CPUs and therefore, different parts of the market, different process requirements for some of those devices. And so I think that's perhaps what's different is the visibility into this road map in March of performance requirements that really allows us to marry up our road maps for new equipment, new materials and really engage customers to be ready as those waves come in.

How much visibility are you actually getting now? And like what does that look like versus what would have been typical a few years ago?

It's interesting. We we look at visibility in 2 different ways. I mean, what's most important for us is visibility of the technology road map because the reality is we are already engaged in qualifying for device architectures and materials that won't ramp into manufacturing until probably the early 2030s. And so having that visibility, that customer intimacy where you're really exchanging what's possible around architectures[indiscernible] that visibility has always been strong. And I would say today, in many ways, is even stronger because of the criticality of our tools to their ability to deliver products to their customers. Capacity, visibility and those needs. I think one, we could never ask for enough and we never get as much as we want. But I would say...

Do you mean your own capacity or...

No, Customer demand. I mean -- meaning that at this point, if you look at our WFE forecast, every call, it's sort of been -- we've used this term we're in an accelerating demand environment. What that fundamentally means is every time we come to that next checkpoint there's more than we thought there was. And so I would say that the visibility is not as good as we would desire, but it's much stronger. Therefore, it's exactly the good kind of lack of visibility. And it's quite far into the future at this point.

Got it. And maybe to go back to that point. I mean, clean rooms right now, what you see is that the primary constraint on things right now.

Yes. We've been clearly vocal about the fact that clean rooms are constraining the ability to ship more. Obviously, there's a lot of activity in that space to try to bring new clean rooms online. But frankly, it just takes time. It's a big process to build one of these very advanced semiconductor fabrication facilities. And so I think that we -- that's why I say I'd say the visibility at this point, once a fab starts construction, you kind of know where your demand is coming from maybe 2 years out, right? And so I'd say we have quite nice visibility from that.

How many fab projects are you guys tracking right now? I don't think you ever given that number.

I don't think we've given that number, but it's a lot. .

Hundreds.

I don't know if there would be -- in terms of new greenfields, I don't think it's quite that number, but clearly, every fab is also going through continual technology upgrades and refreshes to make sure that they have the capacity needed to meet the performance demands that really is where the market is today.

So let's maybe take a look at the different end markets. Let's start with NAND. I know you guys used to be thought of as the NAND player. And you really -- you still are, but not anymore, -- it's -- it used to be is fully dependent on it, and it's clearly not the case. And I still remember seems quite now, but it was a few -- a few years ago during the NAND trough and that was before the stock split, but you guided something like a $5 EPS for the following quarter for a nominally NAND focused semi-cap company with no NAND in the guide right? Because it was fine right? And so the diversification story has done really well. .

At the same time, though, we are -- I don't know that we've seen a ton, especially given all the demand that there clearly is for NAND and for storage. We haven't seen a ton of greenfield builds yet. It's been primarily upgrades. My view has been the NAND guys decided they'd like to earn money for a change, which is a little new. But I guess maybe talk a little bit about the differences between the NAND upgrades and expectations potentially for greenfield because I feel like they've got to start adding greenfield at some point. I don't know how far the upgrades can carry us.

Yes. Actually, I'd love to answer that question, and I will in just a minute. But first, I have to sort of at least clarify a little bit of this, Lam is the memory company versus what we've become.

Because you really I think that's an important, transformed, I think.

Because -- and we still wear that memory leadership like proudly, but the reality is we've come so much more. And the last -- if we went back 5 years ago, Lam, our business is about 60% in memory. Last year, it was 60% foundry logic. And that was a deliberate strategy of ours to not give up this tremendous position we built as the enabler of a lot of these memory road maps. But it was a strategy to diversify the company in a way that we could participate in a much bigger way in the device architecture inflections and the advanced packaging advances that were coming for foundry logic.

And I mentioned this, the visibility that's important to us is we see where these road maps are going 5, 6, 7, 8 years in advance. And so really about 7, 8 years ago, we said there's a huge wave coming for foundry logic. Advanced packaging is going to become a pretty big thing. And so we pivoted the company in terms of where we put a lot of our R&D spending, the new products we were developing and now it takes several years to get those products completed. It takes several years to get them qualified in customers. And now you really see that rolling through. And I think you've seen Lam gaining both expanding our SAM through this new portfolio, but also gaining share with those new products. And I think every earnings call we talked about low KLD. And we can get into all of this a little bit next .

Was have to -- but run forum because I can start to go down[indiscernible]

Exactly, we'll come back to your NAND question. But the company has reshaped, but we have not given up that NAND leadership. And I think that now you're starting to see that roll through, not through greenfield yet. But last year, at our Investor Day, February 2025, we had talked about this upgrade cycle. And in the NAND business for years, the upgrades and in sort of the natural way of making use of that installed base and just scaling the number of layers.

So this is simplistically using the installed base to put out wafers with more bits on.

With more bits on the Yes. And so what we had said last year was that it would take several years but the customers would upgrade the tools they had in their installed fleet from kind of the 100-plus layer counts to 200-plus layer count devices, and therefore, get more bits and also those bids might be higher performance, more capable bids. We've seen a dramatic pull-in in that upgrade cycle. We said several years and now we -- on our most recent call, said that entire $40 billion upgrade spending would likely be complete by the end of 2027. Now that's .

How far along we are on the $40 billion, by the way.

We haven't really, but we're, again, back to this accelerating demand environment. It means most likely it's about -- it's from this point forward more back end weighted. But it's an indication of 2 things. One, the role of NAND within the AI Herky is becoming more prominent. There's stronger demand, whether that's for enterprise SSDs or use of NAND and KV cash or any of these new data storage projects that you've seen from companies. But it also is the indication of your clean room shortage, which is there just weren't enough clean rooms available to satisfy all the demand of HBM and this rising demand of NAND.

And I think that NAND has found itself first going through an upgrade cycle, but then eventually, as you've seen as there's been shortages effectively needs to start building greenfield. And you've just started to see some of those announcements. But it takes a while to build those fabs. So it's still pretty far out there on the horizon. And I think that it's probably more of a '28 and beyond event, which I think from our perspective is fantastic because, again, we can focus right now on a lot of these upgrades, get the installed base up to that technology. And then as a next wave of growth for the company, really see these greenfields come in and the additional shipments that come from those that demand.

And then maybe 2 follow-ons to that. One is, do you care upgrades versus greenfield, like what does your exposure look like between the 2? Is one better than the other? And then number two, just to clarify, the upgrade is really an installed base kind of business. You guys control the vast majority of the installed base not there NAND, correct?.

Yes, we do. We are clearly the leader in NAND. And we're, more importantly, the clear leader in the critical technologies that are required to enable the upgrade, meaning the -- if you think about the way NAND flash is manufactured, with that big memory stack and then the etching and deposition done inside of that to create the devices, Lam has a significant -- significantly high market share of all of those steps. And so if the customer wants to build a taller device, typically, the majority of the spending is actually on Lam equipment to build taller stacks and create those devices. So upgrades are great for us. We have a very, very high percentage of the SAM of the WFE that's being spent on the upgrade. But actually greenfield is great, too, because it grows our installed base. and it makes that next upgrade cycle even that much bigger.

And so I think that what I also want people to understand is when we put out the number, they said $40 billion to upgrade from the 100x level to the 200x level, -- that's not a 1 and done because then a couple of years down the road, 200x needs to go to 300 or 400. And then that needs to go even bigger. And so you see our customers they've been stories out and talk out about building 600, 700, 800, 900 layer NAND devices just recently. And so that's a road map that fundamentally we look to help enable in the years to come. And -- so both are -- in the upgrade, we capture a higher percentage of the customer spend. But in the greenfield, we build an even bigger installed base for an even brighter future. And so both are good.

Got it. Let's talk about some of the other segments. And you mentioned advanced packaging that's clearly been on a lot of radar screens as [indiscernible] laws slowing or stopping innovation is not stopping. And what it means is we have to do other things and packaging is clearly one of those other things. So what does Lam actually do in advanced packaging. Where are you actually like where is your primary contribution? And how big is this business for you now?

Well, maybe I'll reach all the way back into, I think, the 1990s when the Novelis portion of our company was known as the King of Copper. Today, all these years later, we're still the King of copper. And so if you think about advanced packaging, a lot of the copper plating everything is done to create the metal interconnect is an area where we're incredibly strong, etching, of course, things -- whatever the device if it's HBM or it's advanced packaging, TSV etching, silicon etch is a...

Through silicon vias by the way through silicon, holes they go all the way through the wafer.

And so that etch but also advanced packaging has become quite a complicated architecture. And so there's a number of dielectric gapfill inter-dye gap fill, we call it as well to go in chips. -- just a number of steps. And so if you look at the advanced packaging and you think about where the money gets spent, A very large percentage of the dollars are directed towards etch and deposition applications. Essentially, it's a building and interconnect type of architecture. And so that's -- it's really great for our portfolio.

How big is that for you now? And how is it growing?

Yes, we said that it's -- this year would grow over 50% from our prior year.

Did you give a dollar number or...

We've sized it in the range of around $2 billion. I mean it's kind of like we -- maybe that's probably about as close as we're going to.

Clearly growing in. Certainly, I think, gaining in importance as the complexities of these chips continue to .

Yes. No, it is a fast-growing area. Again, it enables, again, as you said, for the end customer to create something that's very difficult to create on the chip itself. And so to your point of when shrinks aren't the best way to get to an answer, the industry is finding ways to create an alternative path to know, get out and do that.

Got it. Got it. And so you're talking about memory before, but you've -- you were known as the memory player, but it was still mostly NAND. Like what do you guys do in DRAM? Clearly, some of the packaging piece, I mean, for HBM, you're going to need TSVs and other things. If I'm looking at what the wafer volume like inside one of these big GPU racks, by the way, it seems to be dominated to be by HBM by DRAM. It's like where is Lam's exposure like in the DRAM space.

Yes. within DRAM, as DRAM dimensions continue to shrink, the criticality of our etch platforms has become even bigger. In recent earnings calls, last few quarters, we've talked about wins in conductor etch, things that are tied very closely to the formation of those very small features that are now on these DRAM devices. We also have had good success with our drivers this product. .

I want to talk about that a little later.

Yes, we can talk about that. But DRIVEREsISTis, again, DRAM is utilizing more layers of EUV. And so again, Lam's strengths around patterning and the feature formation. And so that's become a lot more critical as our customers continue to try to push DRAM to its performance limits. On the deposition side, again, you mentioned in HBM through silicon via, copper plating. Those are markets where we're in applications where we're incredibly strong. And so our share of DRAM has been growing as we've continued to broaden our portfolio.

Got it. And then, I guess, finally, I mean, to round it out to foundry logic, I guess, both leading edge as well as trailing node. What are you doing differently there now that maybe like if you look back 5 years or 10 years, these used to be relatively small parts of your business that are quite sizable now. There's been clear share gains, adding customers. It's like what have you been doing there? And like what are you seeing there?

Well, Stacy, maybe if I can add a little humor here. I mean the 3D NAND transition was huge for Lam. I wish they had called like gate all around 3D logic. And maybe Lam's participation would have been a little bit -- it's not quite the same, but at that transistor level, if you kind of think about what a gate all around looks like, it really is starting to get into that realm of 3D processing. You now have these nano sheets and you have to in these layers that you've got to like deposit and then fill and then selectively etch the material out. And so many of the things that you would do in a NAND device clearly, the processes are different, but the concept is the same. And so we've been.

You guys need better marketing.

We need better marketing. As we've gone into -- as foundry logic has transitioned into more 3-dimensional device architectures. The demand for Lam products like our selective etch have grown pretty dramatically. Atomic layer deposition has grown. Of course, you're also talking about the shrink to 2-nanometer and below, which means conductor etch and the ability to form these -- to etch the pattern that's been printed by this very precise EUV process. You've got to be able to translate that into the underlying device. So I would say that the demands of foundry logic today are much better suited to the portfolio of products that we've been working on.

And I said that was part of that shift. A lot of these products have been introduced just in the last several years. like low case spacers using ALD. These are products that we started to develop as we shifted from this, not just a memory focus, but really wanting to own the logic transitions as well. And I think we've done quite nicely there.

Can you give us any color on some of the things you're looking at now that would be more in that 20, 30 plus kind of time frame? Or is -- that's not something you can talk about .

Probably on a product perspective, I'd rather not do that.

But general concepts?

Well, I think general concepts, anywhere where you see a push for one, new performance-enhancing materials. Obviously, like if you think about what we have going on right now, we're leading the push towards molybdenum like within NAND and ultimately within foundry logic. And so when you kind of see that, I'll leave it at that. It's like we've built an incredible base of deposition and etch technologies. And I think that now it's about how to continue to expand the applications of those into forming these new devices.

But there's a lot of new architectures coming to out there in that 2030 road map.

Those are going to sheets and CF FETs

And then across every device, there's new things coming. And so what I'm happy about is we today, and we say this and it's -- you can kind of see it if you look at the full lineup of products. I mean we have the broadest, most competitive product portfolio in the company's history. And so we feel like we are well positioned to like address these new inflections that are coming.

Got it. Let's talk about some of the more like internal aspects of the company now and start with maybe margins. It's funny like in this session, I always ask you, why do your gross margins have to start with 4? And I don't have to ask it anymore now because they don't start with the 4 anyone, how they start with 5. Maybe talk a little bit about how -- like what that process looks like to get there. And some of it's going to be mix. I don't know how much of it is pricing. Some of it is new products and new value add. But how do we get there? And where can things go on? And I know you gave -- you had the Analyst Day a little over a year ago, and you gave margin targets. I think these were '28 that you've now hit I think you've talked about we may be getting new targets later on in the year. I don't know if you're going to have another Analyst Day you're just going to give them to us, but...

Probably not a new Analyst Day at this point.

I'm assuming you're not ready to give them to us today. I give them today. But I mean, in general, it's just what is the -- and there's been other things, right? I mean you've -- I think you guys have been out in front of adding supply in front you certainly -- you built up Malaysia. And I remember Malaysia was a margin headwind for years while that was happening, and now that's paying off benefits. And it looks like you've actually added to that now as well.

Maybe touch just a little bit about some of the internal things that the company has done around the execution, margin supply. Anything else that comes to mind because I think it's another reason beyond just like the market lifting all boats, Lam has clearly outperformed over the last year came on with the stock is up year-over-year, 200%, 250%, like whatever it is.

I really look at it Sure. No, it is Yes. No, a lot of it has been self-help. I mean we -- but it was with this eye that we were going to become a much bigger company. We've had that confidence. And so many of the items that you talked about First of all, I do like living in the 50s neighborhood better than 40s neighborhood. So that's good.

But some of it did come from our large manufacturing expansion. Obviously, as we went through COVID, we saw that and the big boom there and the difficulty to supply to the demand. I think we all sort of internalize, we don't want to let this happen again. And so we've made significant investments both in our manufacturing capabilities and our supply chain over the last several years. And I think that's starting to really pay off. As you said, for a few years, it was a bit of a headwind as we were filling that up. We've now had no problem filling it. And in fact, we -- later this year, we'll be opening our second facility in Malaysia that will be approximately equal size to the first one.

will it be equipped? Or is it just like floor space?

No, it will be in use in the second half of this year.

So the good news for us is it does not take quite as long to build a equipment manufacturing facility is to build a full-on clean room. And so we are able to respond more quickly.

Your CapEx is what.

Our CapEx runs 4% to 5% of revenue all in labs, manufacturing, everything, so we're pretty CapEx light from that perspective. But it -- so it's a combination of becoming significantly more efficient in our own operations plus A lot of the applications I just talked about where we've moved into these spaces where they're really in technology-enabling capabilities tied to sort of the customers' latest devices, gate all around or HBM, high layer count NAND. And we've built products where we've -- we're delivering significant value. And so I think that the combination of all those things has driven the margins up. I would also point out that from a mix perspective, in general, some of the -- that would have been known in the past is higher mix portions of -- higher margin portions of our business have become a little bit lower part of the mix. And we'll probably talk about China a little bit.

But so what it actually says is the core part of our business, non-China, -- you can imagine the margins from our own work have done even slightly better.

Got it. And I guess, are tariffs a thing now? If you had like cost increases or anything, I assume you're offsetting that, but [indiscernible] little trying to...

I'll contemplated in the numbers. We have reported and put out. And so I think you can see that even if there are, it's part of the margin improvement story.

Yes. So maybe, I mean, that is a good segue into China. And you're right. I know for a while, you were getting a boost when China was a bigger piece of the business, and China has fallen off a bit, which I don't think investors are terribly sad about, frankly, as long as the rest of it is growing and the margins still look really good. But what are you seeing in China? Like I mean, clearly, we've had general decline in like lagging edge logic, a lot of -- I don't think it's all China, by the way, but like a lot of it is China. I get a lot of questions clearly about Chinese competition and local players, which my general view, by the way, has been that they are real companies like they're not -- they're very capable what they can't do everything.

And they will probably take more share than they would ordinarily deserve to take because of some of the regulatory issues, they have no choice. But in general, what are you seeing there? It doesn't seem like it's been an investment controversy in a word, but it doesn't seem like it's really slowed anything down at all for you guys or frankly, for the industry as a whole.

Yes. I think that 2 things. One, maybe just to address the regulatory issue we comply, obviously, with all regulatory requirements. And so we don't do any business in places where we're not allowed to.

You're not shipping like YNTC here and..

So therefore, local equipment suppliers have filled in for the -- where we can't compete. But places where we can compete in China, which tends to be, as you say, the lagging edge nodes, there's still tremendous value that's delivered from Lam tools. Even though those tools were likely engineered and developed by land more than 10 years ago.

And so I think that, that speaks to, one, the quality and capability of Tools land builds plus the local support capabilities that our team provides. But the business itself, as you say, it's -- we see China in general is kind of flattish to to maybe roughly up a little bit this year. So compared to the last few years of growth, I mean, it's clearly moderated.

Yes I mean it was what, 40% of your revenue or something at the peak, I can't remember.

Yes, and now come down quite substantially. And so I think that that's, as you said, look, that's the kind of balance we want to see in the business. And so it's an important region for us, and we satisfy demand from the customers we can serve with tools that we can sell. And I think that, that's but it's no longer like quite the headline story. I think every earnings call, we used to get questions about China sustainability. And I think now it appears to be in this relatively sustainable run rate right now. our story now has transitioned much more towards our growing SAM, growing deposition etch intensity at leading edge, driven by AI. And I think I like telling that story a lot more at this point.

Yes. Certainly more fun to tell. Do you have any thoughts on some of the Huawei announcements that we've seen over the last couple of days, logic folding? And I don't know if you've been if you followed it.

I've seen it, but no. I haven't internalized a comment at this point.

Maybe just one more question just as long as we're in China in lagging edge. China is a big piece of your lagging-edge business, but it's not all in. I guess how much is in China? And maybe just a few comments on that business. This is the Reliant business, right. Most of the 200-millimeter business. Although I guess all of your lagging edge probably is -- it isn't all 200-millimeter, I'm assuming.

That's right. There's quite a lot of mature node technology that's at 300 quite a lot. And within our company, actually, some of it to a mature node, some of it will come out of Reliant, some of it will actually still come out of our primary business units. So it's therefore a little bit harder for you to track down. But we do see -- obviously -- the reality is complex electronic systems today, they require leading-edge chips and they require a whole lot of .

We're starting to see growth in the lagging edge now to .

We're in an industrial cyclical recovery. And clearly, the AI, like power semis have all been on a tear. I mean you're seeing -- we're not seeing any signs of real recovery in trailed yet. That's right. We are.

We're seeing some growth in that area. But I think more importantly, what we are also focused on is, again, this idea of engaging on where those markets are going. So it's a little bit less about -- we serve capacity that comes in demand that comes for the things we already have. But we see an emerging opportunity in what we considered to be the specialty technology space. Again, there's a lot of new applications where there are new materials require new deposition techniques. And while none of them are quite the market size that you see from AI, they're very good businesses for us to pursue, given that quite often, we either have the equipment available and it's really about application development or it's equipment that can easily be derived from the fundamental technologies that are within our company.

And so we have a group that focuses on those applications. These would be things like photonics, maybe some materials for RF applications, special materials for powered devices. And so those are all -- in many cases, they're materials, they're deposition or etching applications. And so very well suited to what Lam can do. And I would say that we intend to pursue those as well as we again look to broaden our portfolio across these markets.

Got it. Now those reliance tools are in the services business. This is a good segue of services. I still got to ask, any plans to move it out of there. I think AMAT move there at their 200-millimeter back into equipment. It seems like it makes more sense.

Yes, we haven't I would add -- we understand the comment and don't have any plans .

But let's talk about services. So again, this is an installed base business even in a down year for equipment, it tends to grow because the installed base grows even in a down year. I think your services revenue per tool has been going. I can't remember the CAGR, I have the numbers somewhere, but it's been growing at a pretty good clip. I think services, you've talked about is sort of like a sustained double digit. I think the one time it didn't happen is when you had some of the China issues do the sanctions a few years ago. But just talk in general about the services business, where is the value add there? What are the different pieces in there again, I went over a little bit growth but how do you see the growth structure going forward? And what does that add for you guys?

Sure. Well, it's a really important part of our business. In fact, the services or CSBG, as we refer to it, is about 1/3 of our business at this point which -- because a lot of that is based on the installed base and it's some of the larger components in there, things like spares and upgrades and really install.

So all that NAND upgrade revenue is actually in services. It's not an some of -- not all of it's in there Okay.

But it's very installed base focused. And so our installed base right now is about 100,000 chambers and growing. And again, in operation they're all running

Yes. what's the lifetime typically of these tools, by the way.

A couple of decades or more than a couple of decades. In fact, a few years ago, I had a had the team go look at -- to find -- my first job was actually installing tools at the company. It was like a process engineer inside the customer fabs. And I said, "Go find that very first tool I installed. And they actually track it down -- that was about 25 years after I've done that job, still running.

We had, by the way, my lab at MIT 20 years ago, we had an old Lam rainbow TCP.

Okay. I didn't install that one. But the reality is like the installed base, it's the gift that keeps on giving, right? So it has multiple revenue streams. Of course, we service them, maintain those tools in many cases, spare parts, a lot of proprietary parts on our tools.

So as the installed base gets bigger, especially when you're in these high WFE years like now, installed base is rapidly expanding. That's a future revenue stream for the company that continues to grow. But the more exciting thing about services is what's happening as a result of all -- of 2 things.

One, the rapid expansion of fabs everywhere in the world, often in places where resources, trained resources are not readily available. And you combine that with the fact that the AI is demanding the most -- the highest performance, most precise device manufacturing we've ever seen which means that the tools condition and the maintenance on those tools is kind of reaching the engineering or technician limit in terms of precision and repeatability. And so for several years now, Lam has been working on what we call -- we call Equipment Intelligence, but think about it as building AI models around the data that's coming off of your tools. And we've also been working on cobots.

Cobots.

And so we call it sort of a new product we have called Dextro.

Physically servicing the tool.

Physically servicing the tools. .

Taking off flanges or I don't know.

And reinstalling and cleaning the chambers and all the things that an engineer actually would hate to do anyway, the cobot can now do. And what we've seen, these are now running in production, maintaining tools in several of our customers' fabs. And what you see is you see a dramatic improvement in first-time right after mains. You see an improvement in maintenance sensitive measures like edge uniformity around the wafer in an etch tool, you install like a plasma tuning ring. And we asked the engineer -- the focus ring you asked the engineer to basically align that thing to like a 50-micron tolerance, right? It's just difficult. Cobot has no problem because the cobot will have kind of a vision system. It can basically take measurements, install.

Is the robot mobile? Or is it parked next to a single tool like.

Yes. From a cost perspective, remember, you don't need to do maintenance that often around. So it can one cobot can service depending on which type of tool, a large number of modules. And so that service opportunity for us -- it adds significant value. It eliminates this resource constraint that has become a challenge for ramping new fabs. And frankly, just from a technical perspective, the precision and repeatability of cobot driven maintenance is dramatically better and shows up in on-wafer performance.

So how does that work? Do you sell the robot? Or is it part of -- to subscriptions SP-9 Part of a service agreement subscription you often use that service agreement . Have you ever talked about how much of your like services revenue you're actually under like agreements versus one-offs?

We haven't really. I don't believe we've given that number. But it's growing. I mean this is these -- a cobalt becomes a very sticky type of service simply because now you're relying on that piece of equipment to effectively maintain your other equipment. We combine that then with what we call Equipment Intelligence. And this is another big focus of ours, which is we've always collected a lot of data from the tools. But now as these processes are becoming so much more complex, we're finding and also AI engines are becoming so much more capable of handling disparate types of data input that [Technical Difficulty] start to do things like video analysis -- you can -- and you start feeding those into the engine and effectively.

Look at the wafer will attach .

Yes, look at the wafer, look at the plasma condition, these sorts of types of data streams. And what it's really helping us do is start to really match tool performance across very large fleets of land equipment running in different fabs that might be located, one in Asia, one in the U.S. and you want to run the same process, the same customer. And our customer would want to do that. And the ability to match those fleets of tools really is becoming dependent on this equipment intelligence capability to do that. And it has a meaningful impact on tool-to-tool matching and performance. And so again, that is also a service that that we would provide to .

Presumably, you're able to charge for this

Yes, presumably Yes, we are.

I mentioned, I wanted to give you a chance to talk about dry resist.

Yes. .

What is dry resist, talk to us about .

Sure. So .

I just think it's phenomenal. .

Yes. No, dry resist is -- I mean it's the way Lam is disrupting some of these very -- these technologies that like didn't appear to be disruptible.

Yes. I mean, there's this big controversy back EUV was going to be bad for you. It doesn't seem to be the case. .

No, not for us.

Certainly push back on that?

Yes. Well, a little bit. I mean, one, it turned out that EUV wasn't bad for us because the smaller features you printed more critical or tools became. And so that argument of multiple patterning versus a single print just made our tools actually much more critical for the capability to etch those single print features. And and now you have multiple patterning anyway. So the -- in any case, that part of our business has been fine. But we looked at dry RECIST and this idea of like how do you continue to shrink and push kind of the limits of lithography and one of the limitations we saw was in the resist itself and not only in the material but really in the deposition technique of the resist.

And so for I don't know, 5 decades or more. I mean, basically, you've spun the resist on the wafer and the resist is delivered as a wet chemical. And in most cases, wet processes over the years have gone to drive for controllability and repeatability, defect control, all sorts of reasons. And so I guess, about 6, 7 years ago, Lam introduced dry resist, probably a little ahead of its time. But what drives this does is it is a material that replaces the wet resist for the most critical lithography applications on certain devices. And so it took a while for us to gain customer confidence to disrupt something that they were so comfortable using. But we introduced a suite of tools we call Ether. These ether solutions consist of an underlayer that helps with photoabsorption from EUV, that resist itself and then a dry develop process. So it's a suite of tools.

So it turns the developing all of to an etch process rather than like they currently use a liquid, it's almost like development of photograph.

Yes. Correct. It's like a deposition and etch type processing environments. And so therefore, much more controllable. And looks like many of your other processes. And so it is now in ramping in production in 2 memory makers. This process of record than at 2 memory makers. So memory these solutions. Interestingly, I think it's just the pace at which some of these -- you've got to be very, very far ahead in the foundry logic world to get that cut in. And so I think that as we continue to push forward to the below 2-nanometer regime. I mean, as etching -- as patterning continues to become more critical, we'll find the adoption there as well. But memory is one that moves a little bit -- can move a little bit faster and the volume of wafers is quite high and EUV adoption in memory is also accelerating. And so I think that it's it's on its way now.

You guys gave some revenue targets to walk back. I don't think it was upgraded .

Yes. We haven't really changed them at this point. We said over a 5-year period, about $1.5 billion of revenue back-end weighted. And so we're now into that into that 5-year period.

Got it. So we got about 5 minutes left. I should go to the lightning round. Let's see what we've we've got here. Okay. Where are you seeing -- or do you see the biggest bottlenecks within the AI value chain right now? I would to rephrase it, is semi-cap itself a bottle like a relic -- is it going to get worse?

We've worked really hard. We talked about our operational investments manufacturing supply chain to not become the constraint. So I think that we're not. But I think you see where the constraints are. As we said, clean rooms have been 1 we've talked about quite a lot. -- that problem can get resolved. -- constraint that we're addressing. We just talked about the intelligence and cobots is how long it takes to then ramp and start up and get to mature yield in those -- that will be a little bit of a time constraint. I mean it's solvable, but we're trying to address that as well. But I think it's -- I think right now, it feels like there's a little bit of shortages everywhere, but most of them are are being addressed.

Where do you think WFE growth will be next year of clean room availability was not an issue.

I'm not going to give you an unconstrained number. But we've said 2027, even with the constraints in place is going to be a year of compelling WFE growth.

It's safe to say that it would be more if there was no constraint.

I think it's safe to say there would be more if there were more clean rooms, but...

I won't hold you to a number, though. Let's see here. Okay. As packaging Koos, HBM stacking, et cetera, becomes a gating step for AI compute. wafer fab and packaging, the boundary between wafers and wafer fabs and packaging is blurring. Is Lam's road map converging with the packaging equipment players like Besi.

Well, what I would say is -- I mean, we have a very clear road map for advanced packaging. We play a critical role in that market. I would say that the the biggest investment we're making is we're believers in this transition to larger format advanced packaging. I mean, from an efficiencies perspective, from an enabling.

Say a larger format, do you mean like panel as channels.

Panels of various sizes at this point. There's not just one. And so as a critical supplier, one of the largest for wafer-based advanced packaging, it's a natural evolution for us. We acquired a company several years ago that has large panel packaging positions, and we've significantly invested in that company now based out of Austria. We just opened a couple of days ago, our center of excellence for advanced packaging for panel packaging in Austria. And effectively, we're wanting to lead through this transition. As AI devices themselves become larger and larger for the packages, that's a larger format is becoming almost a necessity and so...

Any thoughts on when that goes mainstream panel level?

We're making shipments now. I think it's within the the foreseeable future. It's coming.

Okay. Okay. We've got about 2 minutes left. I will ask you the same question I always ask you, and we've got a whole room full of investors here, some may be new to the story. You talked about it through the section, but I can sum up. Why should investors buy your stock?

Well, great. Normally, you give me like 30 seconds. I got 2 minutes, but which feels No, no, really, we've touched on a number of the key points. But if I were to sort of sum it up, it is we are, like the rest of the industry excited about these multiple waves of AI demand. And so from a demand perspective, the move from training to inference to genetic to physical fits extremely well with kind of Lam's breadth of position across advanced foundry logic and then into, of course, HBM, but then really the excitement that coming is kind of further use cases for NAND.

And so I think that sets us up for multiyear opportunities for growth in WFE and specifically growth within our segment. I think the Lam specific story then drills down to the increasing role that etch and deposition play in enabling the technology devices and new architectures that are coming. The world is going 3D. I joked about 3D logic. But I mean, the reality is, as you said, CFIT 4F Square, ultimately 3D DRAM. These are all 3D implementations, leveraging that vertical scaling dimension because 2-dimensional scaling, while still occurring is becoming so much more difficult. -- etch and deposition is synonymous with 3D. And so we see etch and deposition intensity as its share of total WFE spending continuing to rise from now as far as we can see these road maps. And so that's it says Lam is in exactly the right markets, and that's where we put all of our focus, etch and deposition leadership. And then finally, I think the reality is we're gaining share. We if you look at the last 2 years' performance, I mean, we've gained share of WFE. Partly, it's that our markets are expanding faster than WP, but partly, it's that we have, I think, at a faster pace than most refreshed our product lines. We just introduced a new Acara conductor etch tool with this direct drive RF capability. I mean, so we're sitting here with a great product portfolio in the right markets and really excited about the future growth opportunities.

Got it. Right place, right time, right stuff.

There you go. Perfect.

With that, I think we'll close it out. Thank you so much.

Thank you.

Good day, and welcome to the Lam Research Corporation's March 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Lam Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer.

During today's call, we will share our overview on the business environment, and we'll review our financial results for the March 2026 quarter and our outlook for the June 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release and the accompanying presentation slides for today's call can also be found on the Investors section of the company's website.

Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Actual results could materially -- differ materially from those expressed in such forward-looking statements. Please see the accompanying presentation slides 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 presentation slides. This call is scheduled to last until 3:00 p.m. 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.

Thank you, Ram, and good afternoon, everyone. Lam is off to a solid start in calendar year 2026, with revenues and profitability in the March quarter at the upper end of our guidance ranges and earnings per share exceeding the top end of our guided range. Revenues were at record levels, highlighted by the first $2 billion quarter from our Customer Support Business Group. Our guidance for the June quarter points to Lam's strong momentum in an accelerating AI-driven semiconductor demand environment.

In January, we shared our outlook for 2026 WFE in the $135 billion range. Since then, spending projections from customers have moved higher across all device segments. We now expect WFE of $140 billion with a bias to the upside as the industry continues to work through various constraints. We believe this sets the stage for another year of compelling WFE growth in 2027.

For Lam, the AI-driven demand environment is creating an ideal setup for continued outperformance. Semiconductor technology inflections required to meet escalating AI compute needs are driving higher deposition and etch intensity. In 2026, we see Lam's served available market or SAM, percent of WFE, expanding to slightly more than the mid-30s percent level, well on track towards our stated goal of high 30s percent over the next few years. Lam is prepared for this moment by transforming how we innovate, build and support. The semiconductor manufacturing equipment needed to address the industry's most critical challenges. Our commitment to R&D and the velocity with which we have scaled our development capabilities have enabled us to create the broadest, most competitive product and services portfolio in the company's history. This is fueling our current outperformance and puts us in an excellent position to deliver on our future growth ambitions.

Across all device segments, we are seeing greater opportunity for Lam. In NAND, AI transformation is moving beyond compute and into the storage layer. [ Hoken ] economics are driving changes to the memory hierarchy used in AI data centers including rising adoption of higher layer count QLC-based NAND devices for SSDs. We expect total data center bits this year to be greater than both PC and mobile segments combined with growing -- continuing growth in data center mix into the future. The growing device performance requirements of AI data centers are driving an acceleration of NAND technology upgrades.

As you may recall, we said in early 2025 that roughly $40 billion in conversion spending would be required over several years to enable existing NAND installed wafer capacity to produce devices with more than 200 layers. We now anticipate that this conversion will be pulled forward with the majority of spending occurring before the end of calendar year 2027. In parallel, we expect growth in bit demand will drive greenfield capacity investment, especially considering that overall industry installed wafer capacity is expected to decline more than 20% from prior highs by the end of this year.

Looking further ahead, we see continued adoption of NAND in the AI memory stack, driving even higher layer count NAND devices. With the largest installed base of tools for 3D NAND, Lam is uniquely positioned to benefit from this trend. As manufacturing complexity scales with layer count, we see an expanding set of deposition and etch opportunities, all rooted in our established leadership in high aspect ratio cryo etch, dielectric stack deposition, [ Worldline ] metallization, backside stress management and gap fill technologies.

In dielectric etch, our Vantex and [ Flex ] tool sets delivered the industry's highest power density and productivity for dielectric channel hole edge applications, where we have a market-leading position. In conductor etch, we are also seeing momentum for our [ Kio ] systems as customers collaborate with us to maximize device yield in a constrained capacity environment. In a recent win, a customer switched to [ Kio ] in the middle of their production ramp due to superior defect performance and better yield. In deposition, we are seeing the transition to higher layer count NAND, also driving greater demand for our Strata, [ Altus Halo ALD ] and [ Vector DT ] products. Altogether, we believe the production proven strength of our portfolio puts Lam in a great position to outperform overall NAND WFE growth as AI demand accelerates over the next few years.

In DRAM, AI's power and efficiency requirements are driving an industry transition to 1C generation devices. As feature dimensions shrink, the industry is shifting from traditional silicon nitride base dielectric films deposited using furnace, the more advanced ALD silicon carbide [ loc ] layers to achieve bit line capacity in production. Studies have shown the re-architected device structures, combined with low [ KBitline ] spacers can reduce capacitance by over 60%. Lam's Stryker carbide solution with its unique plasma source enables capacitive scaling by depositing dense, conformal and tunable low dielectric films with high productivity. As a result, our Stryker based solutions are the tools of record at all leading memory makers for bitline spacer applications.

As the industry moves to 1C nodes, we see our total dielectric deposition SAM and DRAM growing more than 20%. With innovations like Stryker ALD, we believe Lam is well positioned to gain share within this expanding opportunity.

In foundry/logic, calendar 2025 was a record year for Lam. We are carrying that momentum into 2026 as we capture more opportunities from inflections at the leading edge. Most notably, this quarter, we achieved both dielectric etch wins at a key founder logic manufacturer. Our first dielectric edge wins at this customer. And finally, we see growing demand for our advanced packaging solutions where we bring unmatched experience in equipment design and process technology for copper plating and [ TSC Edge ]. Lam's advanced packaging revenue growth is expected to exceed 50% in calendar year 2026.

Turning to our Customer Support Business Group. We delivered our first $2 billion plus revenue quarter. Demand was strong across spares, upgrades and services. As customers look to improve fab output in a space-constrained environment, more opportunities are being created for CSBG to deliver innovations that increase productivity and enhance yield for our customers. Our services business posted mid-teens growth over the December quarter. Highlights included a new agreement with a leading foundry/logic customer to deploy our equipment intelligence services for critical deposition applications. The top memory customers also set to utilize our Equipment Intelligence capabilities in R&D to enable faster ramps of new nodes for NAND and DRAM production.

We are also gaining momentum with our Dextro cobots, which deliver an unprecedented level of automated tool maintenance precision and repeatability. Customers using Dextro and production are benefiting from higher output and in some cases, improved yield from existing capacity. In the March quarter, we expanded Dextro coverage to 8 Lam tool types up from 6 last quarter. We also introduced the next generation of Dextro, which packs 10x more compute power than the first generation into a smaller footprint. This quarter, we will ship our first Dextro cobot for a deposition product further increasing our ability to create value from our overall installed base more than 100,000 chambers.

It's an exciting time for the semiconductor industry and for Lam. In an accelerating demand environment, we see rising deposition and etch intensity creating a multiyear outperformance setup for Lam. We have made strategic investments across the company to capitalize on this opportunity. increasing the velocity of both our technology development and our operational execution. Our progress can be seen in our strong March quarter results, our higher June quarter outlook, and our expectation that second half calendar year revenues will exceed the first half. In short, we are delivering on the tremendous opportunity in front of us with more to come.

Thank you, and here's Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. Lam is off to a solid start in 2026, building on the momentum we delivered across 2025. In the March quarter, revenue gross margin and operating margin came in above the midpoint of our guidance ranges, while earnings per share actually exceeded the high end of the range. We also achieved our third consecutive record revenue quarter.

March quarter revenue came in at $5.84 billion, which was up 9% sequentially and up 24% from the same period in 2025. The deferred revenue balance at quarter end came in at $2.22 billion, which was flat sequentially. Within this balance, however, customer down payments came down by roughly [ $300 ] million, while the other line items increased with the growing business levels. I just mentioned that down payments are now at the lowest level we've seen in nearly 4 years.

From a market segment perspective, foundry accounted for 54% of our systems revenue in the March quarter, which was down from 59% in the December quarter. Revenue in dollar terms was approximately flat sequentially, and it was up 35% year-over-year. Foundry saw strength in investments at the leading edge, as well as ongoing mature node spending. Advanced packaging within foundry continues to be an area of solid growth for us.

Memory was 39% of systems revenue, up from 34% in the December quarter. Within memory, we delivered record DRAM revenue accounting for 27% of systems revenue which was up from 23% in the December quarter. High-bandwidth memory investments remained strong. The profile of spending is also gravitating towards the 1C node and beyond enabling the ramp of DDR5 and LPDDR5. Nonvolatile memory contributed 12% of our systems revenue, up slightly from 11% in the December quarter. As Tim outlined, AI workloads are accelerating demand for higher capacity NAND and Lam continues to benefit from strong leadership within this segment. We expect to see growth in NAND investments throughout the remainder of the year as the industry converts to 256 layer and above class devices. And finally, the Logic and Other segment came in at 7% of systems revenue in the March quarter, in line with the prior quarter.

Let's turn to the regional breakdown of our total revenue. China came in at 34%, which was a slight decrease from the prior quarter level of 35%. We expect that China revenue in the June quarter will decline from these levels. Korea and Taiwan each came in at 23%, which was both up from 20% in the prior quarter. Both the Korea and Taiwan regions represent record revenue level in dollar terms in March. And I just mentioned that this regional mix was generally in line with our expectations from the beginning of the quarter.

Customer Support Business Group generated a record $2.1 billion in revenue in the March quarter, which was up 6% sequentially and up 25% from the same period in 2025. Sequential growth was driven by a large and expanding installed base and the continued expansion across our spares, upgrades and services business, partly offset by Reliant. Growth in spares and service is benefiting from strong factory utilization across the industry.

Let's take a look at profitability. Gross margin in the March quarter was 49.9%, which was at the high end of the guidance range, driven by multiple factors, including favorable customer product mix as well as improved factory efficiencies. Operating expenses in the March quarter came in at $866 million, up from the prior quarter's level of $827 million. The increase was driven by seasonal employee-related costs as well as higher headcount to support our growth. R&D accounted for 68% of total operating expenses. We will be growing R&D investments throughout the remainder of the year.

March quarter operating margin was 35% at the high end of our guidance range due to the higher revenue and the improved gross margin. The non-GAAP tax rate for the quarter was 9.2%, which came in lower due to benefits from higher equity compensation vesting, which is deductible on the taxes during the quarter. We continue to see the tax rate below the mid-teens for calendar year 2026.

Other income expense in the March quarter was $8 million in expense compared with $10 million in income in the December quarter. The variance in OI&E was primarily the result of small losses in our venture portfolio as well as lower interest income. Interest income decreased due to the lower cash balance in the quarter. And as we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter.

For capital return in the March quarter, we allocated approximately $800 million to share buybacks through a combination of open share repurchases and a $200 million accelerated share repurchase transaction. Our average buyback price was approximately $211 per share. We also retired $750 million of unsecured notes that reach maturity using cash from the balance sheet. Additionally, we paid $326 million in dividends. In the March quarter, we returned 139% of our free cash flow. Our plans remain to return at least 85% of free cash flow to our shareholders over time. The March quarter diluted earnings per share came in at a record of $1.47 which was above the high end of our guidance range. The diluted share count was 1.26 billion shares, which was flattish with the December quarter and consistent with our guidance. And I just mentioned that we have $4.3 billion remaining on our board authorized share repurchase program.

Let me pivot to the balance sheet. Cash and cash equivalents totaled approximately $4.8 billion at the end of the March quarter, which was a decrease from $6.2 billion at the end of the December quarter. The decrease was primarily driven by capital return activities that debt paydown as well as capital spending. Days sales outstanding was 64 days in the March quarter, an increase from 59 days in the December quarter. Inventory turns improved to 2.9x from 2.7x in the prior quarter. These were our highest level of inventory turns in over 4 years. As a company, we remain focused on our strong asset utilization and return on invested capital. We're pleased with the sustained performance we continue to deliver here. We will be managing our inventory and supply chain to align with the growing demand that we see in front of us.

Noncash expenses in the March quarter included approximately $97 million in equity compensation, $103 million in depreciation and $13 million in amortization. Capital expenditures in the March quarter was $332 million, which was up $71 million from the December quarter. Spending was higher to support the strong demand environment that we're seeing. Investments are enabling a second manufacturing facility in Malaysia as well as lab-related investments in the United States and Taiwan.

Looking forward, we continue to expect capital expenditure to be in the 4% to 5% of revenue range. We ended the March quarter with approximately 20,600 regular full-time employees which was an increase of approximately 900 people from the prior quarter. Headcount increases were primarily within the manufacturing and field organizations to support volume growth. as well as in R&D to support our long-term product road map. As we scale the organization, we also undertook a small workforce optimization focused on efficiency. You'll see this in our non-GAAP reconciliation.

Let's turn to our non-GAAP guidance for the June 2026 quarter. We're expecting revenue of $6.6 billion, plus or minus $400 million. Gross margin of [ 50.5% ], plus or minus 1 percentage point. We're expecting this expanding gross margin despite slight headwinds that we're seeing from customer mix. Forecasting operating margins of 36.5% plus or minus 1 percentage point. And finally, we're forecasting record earnings per share of $1.65, plus or minus $0.15 based on a share count of approximately 1.255 billion shares.

So let me wrap up. We're executing well against our financial objectives and driving operational efficiency while increasing R&D investments to extend our technology leadership. With our expanding installed base, the strength of our product portfolio and our disciplined approach to capital allocation, we remain confident in Lam's setup for continued outperformance.

Operator, that concludes our prepared remarks. We would now like to open up the call for questions.

[Operator Instructions] Our first question comes from Timothy Arcuri with UBS.

Doug, I wanted to ask about gross margin. The guidance is great, it's [ 50.5% ]. It sounds like despite the mix being against you. So you're kind of already edge at your target model, right, because you were saying above 50. And I'm not asking you to update that model. But sort of can you like deconstruct how you got here so fast? And maybe also, I think people want to hear how much capacity you have? I know you mentioned that you're adding another site in Malaysia. So can you just speak about sort of what the puts and takes are going to be on margin going forward?

Yes. No, Tim, it's a great question. Yes, I think we're pretty pleased with where we're at from a gross margin standpoint. And it's been a lot of real hard work from the company, honestly. I think you'll remember, I don't know, 4, 5 years ago, we talked about expanding our factory footprint to be closer to where our customers were. And that has delivered efficiencies from just a proximity standpoint, from shorter frame logistic lanes. From slightly lower cost from a labor standpoint, a better supply chain set up all of those things. Those were self-help activities that we undertook and frankly, we've delivered on it.

So when I think about the global operations part of the company, they've really done a wonderful job. On top of that, we're working on everything we can do to get paid for the value we're delivering to customers. That's something we're always doing. And I think we're doing a reasonably good job with that, Tim. So anyway, when you put all of that together, I think we're pretty pleased with all of that, and I'll let Tim add a few things here.

Yes. No, I was just going to add one other part that's pretty important in showing up is very important in this constrained period, which is the performance of our tools. We embarked -- Doug talked about some of our higher R&D spending. A lot of that was to ensure that all of these new tools that we have hitting the field enter the level of maturity that's beyond what we had probably delivered in the past. And that's very important for our customers in a period of fast ramp. That also yields benefits for us in terms of installation and warranty spending, which flows through to gross margin. And so you're seeing some of that as well. So that's something that, again, we're focused on going forward is reliability of systems, maturity of tools as they hit the fence.

And let me just add one more thing. Yes, let me add one quick thing. I know there's going to be a question [indiscernible], how should our model gross margin for the rest of the year? I would encourage you to kind of keep it roughly in the levels that we just guided you to in June. This is going to kind of level out at where it's at, I think, for the rest of the year. So as you build your models, keep that in mind.

Awesome Doug. And then I guess just as a follow-up. So there's been a big like massive new fab project. I mean you guys have obviously seen this news bigger than anything we've ever seen before. I mean I think that this customer would have to get in the queue given how booked out things are. Are you seeing -- I mean, I don't want to ask just about that one customer. But like are you seeing these signs of these huge new fab projects, sort of the customer base expanding? And if you did want to comment on that particular fab project if they're sort of coming to you was like a new opportunity, that would be great.

Yes. Obviously, we can't comment on any specific customer, but clearly, the environment right now is such that there is -- there's just not enough to do. There's not enough memory in the world. And so -- and people are worried about supply. And so I don't think it's a surprise that more companies around the world will start to enter into the semiconductor space. And that's why when we talk about the longer-term outlook, it's a combination both of the increased demand, but really increased demand at some of the most compelling leading-edge opportunities that are presented to Lam.

And so I think this is -- when we talk about WFE, there's so much -- only so much that can be executed in this year. But again, you see a lot of these projects starting to line up that I think represents opportunity in the future.

Our next question comes from C.J. Muse with Cantor Fitzgerald.

I just wanted to touch on your commentary around '27 visibility. And can you kind of speak to your discussions, conversations exceeding 18, 24 months, whether you're starting to see real slotting and desire to lock in time frames for delivery? And I guess as part of that, how are you kind of working your supply chain for readiness for that ramp?

Yes. So clearly, we're about halfway through '26. And so given our lead times, of course, we're having conversations with customers about '27. And in some cases, for planning purposes, like getting resources ready engineers hired and trained in the right locations, those -- some of those conversations even extend beyond that. We have customers who clearly announced fabs with openings in 2028. There's no reason not to start having conversations with them about what the tooling is it's going to be required based on the node that we run, kind of the size, the resourcing requirements.

So I'd say we're in various stages of those conversations, but the more visibility we have, the better we can get our supply chain and our own capabilities ready. I think it is a case where today, our view on WFE, as I said, for 2026 really has a lot to do with what we believe can be executed. We talked about this upward bias. We're working a lot with customers on near-term constraints, things they can do within their existing fabs. But at the same time, preparing for those new fab openings and true kind of greenfield shipments as they roll out later this year and through next year.

Yes. [indiscernible], I'd just add, it feels like it's setting up to be a pretty good year in '27 right now based on what we can see.

Excellent. And then maybe a question on CSBG. Obviously, tremendous focus on trying to get every bit out the door in this very tight environment. Curious if kind of the upgrade business that you're seeing is sustainable? And is there kind of [indiscernible] we should be thinking about for full calendar year '26 revenue growth in that bucket?

Yes, [indiscernible] that's a great question. Look, I think we're feeling really good about CSBG, industry utilizations are high. So spares was quite strong in March. Service was quite strong in March. Tim talked about the new Equipment Intelligence and cobots that we're rolling out. We're excited about that. Our customers are excited about that.

So when you see how strong it was in March, I think it popped up, I think it's going to kind of sustain roughly at these levels as we go through the remaining quarters in the calendar year, maybe up a little bit. But I think we're feeling pretty good about the strength that we're seeing here. And frankly, we're innovating here, too. So I think we feel pretty good.

Our next question comes from Harlan Sur with JPMorgan.

When you -- when I speak with the process development and integration engineers, obviously, of your customers, they're very focused on next-generation technologies and architectures and that's what we hear on these calls, right? How Lam is enabling 3D device architecture, cell structures, driving high aspect ratios, new materials, et cetera. But then when we speak with the manufacturing and operations teams, it's a very different focus, right? And the vocabulary set is very different. It's all about throughput, uptime, defectivity, overall fab cycle time. And then especially with the tight supply situation and constrained premium space environment that we're in today, any incremental improvement in high-volume productivity could unlock like literally millions of dollars of incremental wafer output.

You've talked about things like the Dextro cobot, but any other enhancements that you're driving, Tim, to the installed base on productivity and manufacturability and more importantly, like, how are you guys monetizing this? I assume it's maybe primarily services and upgrades?

Yes, it is a too-focused world, as you talked about. And the good news is we've got the company organized in a way that we can focus on both with significant intensity. So clearly, leading edge being in front of those inflections, a number of years, we said sometimes 5, 6, 7 years, you're working with the customer in advance of that node ever reaching production. But at the same time, especially in the environment we're in right now, I mean, production output, uptime yield, those things are really what are most critical to customers in the immediate term.

Plus, I would say, really identifying the bottleneck tools within the customer that's limiting output and helping them with those workstations. Equipment Intelligence, if you think about what it does is it allows us to look at massive amounts of data coming from our tools on every single wafer, and that shortens troubleshooting time if there is a problem with the tool. It helps us with the time to ramp those tools either on new process or as they start up, helps us to match tools, better tool to tool chamber to chamber, all those things can yield -- lead to those tiny little improvements in yield that really do matter for the customer.

On the Dextro cobot, we've talked about the fact that at some customers, the precision and repeatability of the maintenance has actually yielded improvements in both output and yield and does through -- that through better first time right. You do the maintenance, it comes back up and is back into production more quickly. And also just the improved repeatability of, like, let's say, the new part placement inside the chamber, actually has had positive effect on the yield need. So that's something we're really focused on. How do we monetize it. Yes, it's through services and obviously, in some cases, new tools.

Yes. Okay. I appreciate that. And for Doug, your OpEx grew 5% sequentially in the March quarter, implied OpEx growth in June is 7% and given the leverage, it's allowing you to actually exceed your long-term operating margin target of 35%. So how should we think about the OpEx growth through the remainder of this year? And I guess when is the team going to update its long-term targets? Because as the year unfolds on more revenue growth, you're clearly going to drive margins above the 36.5% op margin range that you guided to for June, right? So when is the team contemplating like updating this long-term targets?

Yes. Harlan, it's a great question. First, let me talk about the spending trajectory for the year. Listen, I think at the end of the day, this management team likes to see the top line growing faster than spending so that we can deliver leverage and that's absolutely how we're thinking about things this year. Having said that, we're going to grow spending this year because, frankly, we can afford to do so, and we have some things that I think are quite innovative that we've been thinking about that we've wanted to put a little more money towards. So we're going to do that. We've decided we're going to do that this year.

And yes, we're talking internally about the fact that we're above the previous model that we gave. And yes, I know we need to give you an updated framework and we will do that later in the year. And we haven't bottomed out on exactly when or exactly how we're going to do it, but we know we need to and we will be doing that, Harlan.

Our next question comes from Atif Malik with Citi.

My question is on the NAND market. It seems like near-term NAND is still low, like 12% sales, but something has changed versus 90 days ago, you guys are talking about NAND growing through the year and the pull forward in that the $40 billion number. So can you [indiscernible] has changed in the NAND market? Are you seeing signs of capacity additions? Or what has changed maybe with [ KB Cash ]?

Yes, we didn't mention [ KB Cash], but I think it's a good example of exactly what I was referring to when I talked about it, it's increasingly important role in the AI memory hierarchy. And so clearly, there is increased demand for NAND coming from AI data centers, and that's helpful. But also, if you think of the -- on a relative basis, what under investment in that area, partly as customers make choices about clean room allocation and obviously some other devices like HBM were so hot during that period.

Also, going back to what we said early last year, the installed base had gotten a little bit behind in terms of the state-of-the-art technology. And so most of the installed base at that time, early 2025, about 2/3 of it was still running in the [ 1xx ] 100-plus layer technologies really when you need to get those incremental bits out now, you need to be 200-layer plus. And so that's what's caused this acceleration is you need more bits. You need those bits to be more capable, you need QLC to meet AI data center demands and so you've started to see the push for accelerated conversions in the technology. And that is -- that's what caused a lot more activity in the NAND space.

As people push forward, we didn't also said, look, the conversions are going to happen because that's very -- the quickest way to get to the high capability, but you'll also need greenfield because those technology improvements like in Lam's case, to go above 200-layer, we talked about the number of new tools you need to add to manage the complexity of higher layer count stacks that in itself reduces total wafer output capacity of the industry. And so eventually, you need to add greenfield back to continue to get the big growth we need. So that's the reason we started talking about it is it's materializing as a significant opportunity now on the revenue side for Lam and looks to be so for quite some time.

Doug, you talked about customer down payments at [indiscernible] level in 4 years. And you're also talking about WFE growing in next year. Can you reconcile those 2 comments?

I guess what I would tell you, Atif, is the group of customers that generally provided on payments aren't the ones that are growing the quickest, and that's absolutely what we're seeing going on right now.

The next question comes from Melissa Weathers with Deutsche Bank.

I had a more thematic question maybe for Tim or Doug, if you want to take a stab you can do. We've heard a lot of about reasons why this memory cycle is different with HBM and trade ratios and new applications like [ SOC ] and it does seem like AI is driving memory demand growth a lot faster than what we've seen historically. So I guess, do you ascribe to the view that this memory cycle is -- I won't say the D-word, but there's a change this time around? And then what kind of actions are you taking to derisk the cyclical side of things while still being able to capture the upside?

Okay. Well, it's a great question. And maybe I won't use the D-word either, but I think it's -- or maybe I will. I think it's different for Lam in that -- and there was an earlier question that talked about how so many of these new devices have different architectures, 3D scaling. And so I think the most important thing about this memory cycle is it is a cycle in which you're seeing dramatic improvement and change in the etch and dep intensity. And so the complexity of 3D scaling has created a lot of new opportunities for Lam. And so that is driving both SAM expansion plus share gain for us through those new applications.

So I feel like compared to prior upturns in memory, we are and we're doing even better just because of that extra layer of etch and dep intensity scaling. How do we prepare if there is ultimately that peak, which we're not -- we're certainly not calling right now given the tremendous demand that's out there. But it is we operate very flexibly. I mean, Doug talked about a lot of our operational investments we've made. And in many cases, some of the things we talked about, Dextro cobots, Equipment Intelligence. These are all kinds of capabilities that in many ways, allow us to support our customers without so much of the fixed cost scaling that we had to make in the past. And so we always have an eye on what's it going to look like if the business were to slow down. And I think if you look at our track record, in those periods, we've also outperformed.

And Melissa, maybe I'd just add. I mean, the way I'm looking at this right now is memory is just so critical in all of these accelerated compute architectures to feed the parallel compute, you need just data coming in to keep the machine going. And so the criticality of it maybe is more than it's ever been from my point of view. And I observe -- maybe I'll use a different D-word disciplined investment, right? I mean, everybody likes profitability that they're generating right now. Everybody is just kind of lugging into where demand is. And I think that's a good thing for all of us in the industry.

Our next question comes from Srini Pajjuri with RBC Capital Markets.

My question is on China. Doug, I think your comment about prepayments being down. I'm guessing that's related to China. Can you talk about what you're seeing in terms of the demand environment in China? And as you go through the next few quarters, what are your expectations?

Yes. I think, Srini, what we described a quarter ago is still the way I would describe it this year. I think WFE in China is flattish year-over-year from '25 to '26, maybe it's up a little bit. But you're just seeing so significant growth from the global multinational set of customers that China as a percent of the overall revenue is coming down.

The other dynamic in China is you're starting to see some of the global multinationals in China spending a little bit more, too. So when you look at that overall geographic distribution in China, it's also broadening out in that regard. And yes, you're right about the fact that down payments are down -- down payments tend to come from smaller customers, and a lot of them are in the China region, and so those 2 things are correlated together.

Okay. Great. And then my next question is on the CSBG. So obviously, I think it grew at a double-digit pace for the last several years. And I think last quarter, if I recall correctly, I think you were expecting high single digits because of the reliant slowdown here. But it does seem like the clean room issue is not going to get resolved. Demand is very strong.

So my question is, should we -- I mean, are you seeing any acceleration in terms of your services and spares business? Is this something structural in your view going forward?

Listen, Srini I'll let Tim comment after I give you a little bit of data. What drives a lot of spares and service, frankly, is utilization in the overall industry. Utilization right now and in the March quarter, is very, very high. And so a lot of the growth at least contributing to some of the sequential growth in CSBG was the uptick in spares and service from that utilization. I don't know that utilization can get any higher than it is. Frankly, it's pretty full out right now. And so when you think about growth sequentially over the next couple of quarters, those components of CSBG are probably kind of plus or minus where they are.

Now Tim talked about advanced service and cobots and [ EI ], that layers on top of that to a certain extent. And then also, if you think about what's going on in mature node spending, a lot of that is what drives Reliant and that's flattish this year. The real growth is coming from stuff at the leading edge, which we're really benefiting from move to etch and dep intensity. So Anyway, that's just a few things to think about relative to CSBG. Anything you'd add, Tim?

No, not really. I'd just point out that you're trying to work on constrained workstations within a fab. Again, this is where things like the Equipment Intelligence, how to get those tools up faster for production. There's a lot of focus on that. That's the short-term prove out. And I think that long term, that then has a real benefit because once the value has been seen in this kind of constrained environment, I think that it will be more likely that new fabs get built with all of those intelligent services and automated maintenance capabilities built in right from the start.

Next question comes from Vivek Arya from Bank of America.

To many of your memory customers are talking about long-term contracts, LTAs, pricing arrangements and whatnot. How is that translating into your visibility and pricing power? Should we expect customers to start putting down payments to secure your capacity also? And if not, why not?

Well, it's a good question. I would say that it's translated into a longer visibility for us. As I mentioned in an answer earlier, clearly, we're having conversations with customers now at around the time that they're starting to construct these fabs, it means we have much longer visibility. And I think the most important thing there is to be ready with the resources that are needed and our own capacity to be needed to support those shipments. And so I would say, we're working with customers today short term in their existing fabs. We're working with them with these long-term fab plans and being ready. And in many ways, that's allowing us to be more efficient.

As Doug talked about disciplined build out in our operational capabilities, our manufacturing, our supply chain. I would say that it is translating into financial benefit for Lam as well by having those longer visibility conversations.

And Vivek, I mean, listen, we're having very long-term conversation with customers, but we don't need down payments. We generate ample free cash flow from the business we run the commitments we're going to get from customers are important and significant and they're happening, certainly, but it doesn't require down payments for us.

Got it. I guess maybe the subtext of my question is the gross margins that you're seeing, right, the 50.5%, how durable are there? So let's say if memory pricing goes down next year for whatever reason, do you still think these gross margins are sustainable? And maybe you can even expand from these? Or do you think these gross margins are because the industry is so tight today. So I'm not asking for a gross margin forecast per se. I'm just trying to understand that if you're customers are getting assurance of their pricing? Is there anything Lam can do to help get assurance around your pricing and your -- the sustainability of your margins over the next 1, 2 years?

You know what -- actually, we're not going to give you a gross margin forecast longer term. But I think that what you can see and what we've said is we have been building the gross margin improvement in our company around fundamental capabilities, either our own through our own operational efficiency or through the value that our equipment delivers. And that can be technically as the manufacturing becomes more complex, it can be the unique capabilities our tools provide from a technical or a productivity perspective. And so we have moved at a pace where we feel like the improvements we're making are sustainable because they're rooted in real value or real efficiency. And they're not a -- they're not leveraging sort of the opportunity, and they're not transactional in nature. They're really founded in fundamental value delivered to the customer.

And when I talk about things like cobot, for instance, the value of a cobot is rooted directly in the value being delivered to the customer through better uptime, better yield, and we get paid for that. And I think those types of things are sustainable. When we deliver technology that enables the move to the next technology node. We think those are sustainable regardless of the cycle because it is delivering value to the customer. And that's -- we're in this for the long term with our customers, and that's why we look at, at all of this.

Our next question comes from Jim Schneider with Goldman Sachs.

I was wondering if you could maybe comment on in terms of the WFE uptick you expect which of the product areas do you expect the most kind of incremental leverage? Is it kind of split across all of them? You talked about advanced packaging, but which was driving the most upside to the overall spending envelope this year do you believe? And is that being driven mostly by early fab clean room pull-ins or something else?

Yes, Jim, I'll comment and then if Tim wants to add I'll let him do that. I think the reality of it is everything is a little bit stronger. I think everybody in the industry is working on finding a little bit of clean room that they've been able to just accelerate to a certain extent. Demand has always been there. Demand is as strong as I can remember it. Frankly, it was strong 90 days ago. It continues to be maybe even a little bit stronger right now, and everybody found a little bit more clean room and so they were able to take a little bit more equipment.

Our next question comes from Stacy Rasgon.

For the first one, I wanted to push a little bit more on the services growth. So I understand the drivers around utilization topping and the Reliant weakness. But I mean, you also talked about the $40 billion in upgrade spending pretty much all happening by the end of '27. I don't get the feeling that we've had like tens of billions of that upgrade spending happening already. So it almost feels like we should have tens of billions of upgrade spending happening between now and the end of next year. And from what I understand, I thought that all goes into your services business. So why shouldn't that be a pretty big driver of services growth, I guess, between now and the [indiscernible].

Yes. Stacy, I would point out a couple of things to you. In that $40 billion number. Yes, there's upgrades for sure, but there's also new equipment purchases, right? There's some new things, right? When you upgrade the installed base, you need to buy new equipment to break bottlenecks and constraints. There's also some new equipment as the industry moves to moly. So it's not all just upgrades.

And the other thing I would say relative to upgrades is upgrades were actually quite strong last year in '25 and are going to continue to be for the next year or 2. So that's part of the upgrade story. And then the other components, like I said, spares and service. It's already pretty darn strong in March and, frankly, Reliant with the mature node spending being a little bit softer than everything else, that's the puts and takes to get you to kind of quarter-by-quarter plus or minus flattish as you go through the rest of the year.

Okay. That makes sense. If I could ask a follow-up. So you guys are seeing WFE growing this year on the order of, what, $30 billion, like you said, 110 last year to now 140 plus this year. And that's very strong, but it strong that it is, as you know, it is a constrained growth because of clean rooms. And those clean rooms start to come online into next year. Does that suggest to me that the sequential growth of WFE next year ought to be even stronger on a dollar basis than it is in '26 because you'll have some were to actually put the tools, whereas you don't really have that this year. Like what's wrong with that logic? How would you push back on that?

[indiscernible] to decline to comment on the exact magnitude of WFE next year, but we do firmly as we sit here today, look at clean rooms are going to be more available next year and where we believe demand to be WFE is going to be nicely growing next year. And it's too soon for us to give you a number, but we feel pretty good about the growth trajectory into next year.

Yes, I'd also point out that every year that goes by, as technology advances, etch and deposition intensity rises. And so as those new clean rooms come on and they're targeting more advanced technology nodes, that's better for -- certainly better for Lam's position within whatever the term I used compelling WFE growth is.

Our next question comes from Krish Sankar with TD Cowen.

I just want to follow up on an earlier question on the upgrade to the WFE numbers, the $135 billion going to $140 billion plus. Is there a way to segment was the bigger driver NAND? Was it CPU tightness? Or was it just AI strength?

Krish, what I said is everything got a little bit stronger because everybody got the little bit of [indiscernible] clean room. So it's not any one component of the customer base. Everything is just a little bit better.

Got it. Got it. And then as a quick follow-up. It looks like the third-party market share data came out and you folks gained share in PECVD quite a bit last year. I'm curious which vertical drove that PECVD share gain? Was it DRAM or foundry/logic or something else?

Do you want to take that Tim? You want to [indiscernible]?

Sure, go ahead, Doug.

Listen, I think PECVD is such a broad pervasive tool. It shows up in every component of the customer base. One area I think that sometimes is underappreciated is the use of PECVD and underfill in advanced packaging, honestly. And that was a key contributor. Tim talked about we see packaging this year growing 50%. We talked about real strong growth last year. PECVD benefited from that, obviously.

Yes. I think PECVD also shows up. It's challenging because you think about the old traditional PECVD applications. But even as I mentioned, as we move forward in NAND, for instance, even like our Vector [ DT ] backside stress management actually is a PECVD application. So in many ways, it's such a pervasive technology, and so we see that improvement in PECVD.

Our next question comes from Joe Quatrochi with Wells Fargo.

I was wondering if you could talk a little bit just about where your lead times sit today? And then also, I think you talked about the second Malaysia factory opening. When is that ramp? And can you remind us like what is the size of that relative to, I think it was a pretty large first facility that you have like 700,000 square feet.

Joe, first saying, we don't specifically put numbers around our lead times, but they are stretching out a little bit as demand is obviously quite strong. So [indiscernible] I'm going to give you a number though. Second, the second [indiscernible] facility, we'll come on the second half of the year. And yes, you're right. The first one was our largest factory in the network. This will be nearly the same size or maybe approximately the same size as the first one. So it will give us the opportunity to scale into the next year's demand, I think.

That's helpful. And then I was just curious, I was wondering if you could talk a little bit about just your position for high band with flash. And just any thoughts around that? What does the SAM potentially look like for you guys there?

I'll let Tim should take that one.

Well, I think in any of these cases where you are talking about device architectures that require 3D scaling. I mean, obviously, our SAM opportunity just grows. I think these devices in the exact process flows and [indiscernible] still being worked through. But the types of systems we have, whether it's high aspect ratio conductor etches, higher-spec dialectric etches, the depositions ALD, it will be a great opportunity for us if it -- when it comes to fruition.

Operator, I think we have time for one more question.

Our next question comes from Vijay Rakesh with Mizuho.

Just a quick question on the DRAM side. It looks like it grew very nicely, up 45% year-on-year. On the -- when you look at HBM3E going to HBM4, with the higher layer count, I think, 50% higher. Is there a way to look at what your content uplift is per 100,000 wafers or something HBM3E goes to HBM4or 4E? And I have a quick follow-up.

Vijay, maybe I'll comment and then maybe let Tim talk about the technology. Yes, clearly, it goes up. We haven't given specific numbers around it. But obviously, the higher stack required. I'm getting a little feed back. The higher stack requires more equipment, a little more challenging for the industry. So you clearly need more equipment. We haven't given a specific number on it in terms of dollar per 10-K.

All right. And just on the follow-up on HBF. I mean are you seeing book SanDisk and Hynix talking about it, I guess, but outside of that, when you look at high bandwidth flash, are you seeing investments or CapEx picking up there? Is that something you're seeing into '27? How would you look at that ramp?

Yes, I'd probably leave it to our customers to talk about their timing on these kinds of new technologies. But as I mentioned earlier, on any new technology, we're engaged with customers quite well ahead from a technology perspective of any production ramp. And then it's very much up to them ind.

The one thing that's true, and we talked about it is that these are being driven by the growing importance of NAND as we see it within the AI memory hierarchy. And so again, we think it's something that in a matter of time, this kind of capability is likely needed and [indiscernible] technologies that will support it very well.

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Bettinger for any closing remarks.

Listen, I think Tim and I, and Ram would just like to thank everybody for your time and attention during what I know it's a super busy earnings season. I know we're going to see lots of you as the quarter unfolds at different conferences and road shows. So we're looking forward to that. And again, thank you for your interest in the company. We appreciate it.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone. My name is C.J. Muse, semiconductor equipment analyst here with Cantor Fitzgerald. Welcome to Cantor Global Technology and Industrial Growth Conference. Very pleased to have Lam Research and Doug Bettinger, CFO. Welcome.

Thanks for having me, C.J. It's good to be here.

Always great to have you. Yes. I know you have something to read, so I'll turn it over to you.

Yes. Let me start. I need to do a quick safe harbor. Have a look at this robust slide. I'll read a little bit, and then we can get started. Today's discussion may include forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements can be found on the risk factors disclosed in our public filings with the SEC, including our 10-K and 10-Q. So my lawyers are now happy, and now we can talk about what's going on with the company and the business, C.J.

Wonderful. So given we're in a significant upturn, and now this is the second time we're together, and I think the 3 weeks. I want to keep you happy.

Nothing's changed in the last 3 weeks. C.J.

To keep you in that good mood, I want to start with your favorite business that you've highlighted many times, CSBG. So currently...

Thank you for starting with CSBG.

1/3 of your total revenues and buttressed by an installed base of over 100,000 units. Why is this such an important business for Lam, particularly as you think about offering critical support and driving your relationships with customers as well as supporting your capital return plans?

Yes. So let's -- and by the way, thank you again for starting here. I've had 3 meetings this morning. No one's asked about CSBG in any of the meetings. So it's important. It's 1/3 of the business, as you point out, roughly speaking. The way to think about it is there's 4 components and CSBG is the customer support business group. It's spare parts, it's service, it's upgrading the installed base, and then it's the older products that we call the Reliant product line. So an important component of what we have going on. The important thing, and we give a number at the end of every calendar year, is the number of chambers in the installed base. It was 102,000 at the end of last year. The previous year was 96,000. Our installed base grows every single year. Why this is important is our equipment honestly runs for decades. It almost never goes away. And so over that time period, on average, we generate more revenue after we sell the tool than when we sell the tool itself.

So as much as we're all super excited about WFE, and I am super excited about WFE. It's very strong, and I know we'll get into that, C.J. I often will describe CSBG as my favorite part of the company's business model because it just -- it goes for a very long time. It's nicely profitable and it's nicely profitable because it doesn't require a ton of investment, not anywhere near the level of R&D investment that designing a new etch tool, as an example, requires. It does require investment, but it's not a huge amount.

And so that's important because it is nicely profitable, more profitable at an operating margin level than selling the new equipment, again, because of the more modest R&D investment.

And it is also, to your point, about capital return, it is very cash generative for the same reasons. So it comfortably supports our annually growing dividend and contributes nicely to the capital return and share buybacks.

We're also very excited about what we're doing in the advanced service area using equipment intelligence, and we've got all these cool videos using cobots to provide service that as we think through how we're trying to innovate here, we're beginning to deliver service in different ways.

Service in this industry historically has been show up and do a task. We are innovating here by -- I almost -- I do call it results-based contracts, where we know we can do certain things using more predictive type AI algorithms and the cobots to be consistent in delivering the service where we know we can guarantee certain outcomes. And so that is a really exciting part of CSBG in the advanced service area because it's able to deliver something for the customers that oftentimes they can't get on their own.

So you've grown the business at a 13% CAGR over the last 5 years. You just talked about Dextro and cobots, bringing in artificial intelligence, trying to be predictive. Should we be thinking about a higher content kind of driver there and that over time, we could see potentially even faster growth.

I don't want to get out over my SKUs too much in terms of the faster growth, but yes, what we try to do in the areas like I described, Advanced Services is deliver dollar growth beyond just the growth rate of the chamber count. And we've been quite successful at doing that, and we'll continue to drive the innovation there to try to continue to do exactly that.

And just to kind of level set where we are this year, you've guided high single digits, low double digits for calendar '26. Are there still kind of headwinds within Reliant or is that kind of done?

Yes. If you think about the 4 components I described, spare service generally, when utilization in the industry is high consumption of spares and services is higher. Obviously, utilization is very high in the industry right now, given the strength of everybody's business. So that will benefit. The fact that chamber count grew last year will enable that to continue to do well, spares and service. Upgrades because of what is happening in the NAND set of customers is quite strong this year. It was quite strong last year. And then as I think through what Reliant may or may not do, you have to think about what is happening in the mature node investments globally. Flattish is probably the right way to be thinking about that, maybe up a little bit, but the fact that everything else is growing so strongly, that component probably is a little bit of a headwind, meaning Reliant.

Makes sense. So maybe moving to the current industry outlook. A lot has changed in the last 3 months. And U.K. started semi cap earnings with the first kind of WFE official outlook, up 22%, most aggressive of your peers. So what has changed? And what is driving this robust outlook?

AI -- the demand for AI compute is what's driving it. And obviously, I think everybody in the room and everybody listening to the webcast knows they're just real strength in hyperscale CapEx. That's what's driving it C.J. Yes. We described a view that WFE this year, $135 billion, up from $110 billion last year. The incremental growth vector largely all about AI compute. It's accelerators, it's high-bandwidth memory. It's KV cache driving the need for DRAM. And so when we look at all of that, that's kind of the incremental uptick. Now also what we've been describing, and I think pretty much everybody in the industry has been describing it this way is WFE is going to be constrained by the amount of clean room that's available in the industry. And so end demand right now is stronger than that $135 billion. But there's only so much clean room out there. And it takes time to expand that. So that, I think, is what's going to modulate the amount of investment this year.

So I think you've talked about already '27 being a pretty good year.

Well just because of what I described.

Exactly. So curious, as you think about kind of this pent-up demand, how are you kind of working your supply chain to be ready for this? And I wouldn't -- our house view is that lead times are likely going to be worse this cycle than COVID cycle. Curious how you're thinking about that.

Yes, listen, there's a large part of the organization at Lam whose job is to manage the supply chain, to manage our own internal manufacturing capability. And those guys and gals are very busy right now. We are communicating with all of our supply chain partners about our expectations for volume based on what we're hearing from our customers and the timing of that and what upside might be to make sure everybody is going to be prepared and ready for it.

Our objective at the end of the day is not to be the constraining item in the industry, and I think we will succeed at that. It doesn't mean that it's easy. It doesn't mean that it just happens automatically, it doesn't, but we know how to do this. and I've got really capable supply chain organization that is working on this right now as we speak, and we'll manage it reasonably well, C.J.

Sounds good. So let's focus in on Lam and 2025 was a great outperformance year for you. I think you grew revenues 40%. The market was up 10%. And I go back to your intense focus on R&D during the COVID period that I think has really set yourself up for market share gains. And so you've already talked about being the best kind of house in the neighborhood for 2022.

I'd like to use that analogy.

So what are the key drivers of our performance in '26? And maybe compare and contrast versus what drove the outperformance in '25.

I think -- listen, I'll just make one observation relative to our performance in '25, which is almost 60% of our systems business was foundry and logic. People often think of Lam as the memory company, and we love our memory customers. We do very, very well there. It's not that we're not extremely focused on them. We absolutely are. But we made conscious efforts to expand the footprint of the company quite successfully, as you point out, during COVID. We grew R&D in a meaningful way because we saw some of the changes in the industry was going to experience in gate-all-around and backside power in advanced packaging that do have footprints in memory, but have very strong footprint growth in foundry and logic, right? 3D structure's evolving, which are etch and deposition intensive. So we were quite successful, I think, relative to the investments we made, the strength of the product portfolio.

You saw it from us last year, and our expectation is you're going to continue to see it. And my comment on we live in a good neighborhood and maybe have one of the nicest houses in a good neighborhood is because architectures are inflecting in the third dimension, which grows our SAM, which grows our footprint, which grows our opportunity. And we're very excited about that. I think Tim and I were quite happy with how the company performed last year, and we believe we're going to continue to outperform this year.

So sticking with the foundry logic side of your business, we're now seeing signs of a second and maybe even a third kind of player emerge outside of the lead player. How is that kind of impacting your view of the world and WFE in '26 and '27?

Yes, it's absolutely -- when we communicate a view of $135 billion, it's all in for every -- all of our customers. There's not any exclusion anywhere for sure. And yes, it's good to have things broadening out. But what is most important, though, is just the end demand, right? End demand is very strong. And yes, it's good to have multiple customers supplying that demand and that certainly is what we see.

And I guess maybe sticking with gate-all-around, I think you talked about well over $3 billion in revenues there in calendar '25. Where are we in that?

For gate-all-around and advanced packaging put together was the disclosure.

So where are we in that kind of adoption curve? And then maybe to add to that story line, it certainly sounds like backside power will be adopted by high-performance compute potentially first for products in '28, I would think investments, at least by '27. How does that kind of inform your vision for growth and relative growth.

Yes, both are important. Both are 3D structures. And just to give you a rough order of magnitude on it. We have said as gate-all-around ramps because of the 3D architectures, our SAM expands by $1 billion for every 100,000 wafer starts of capacity that the industry puts in place for the gate-all-around sheets themselves. So obviously, we're excited about that. We've invested to do well there. We are doing well there. And so you're seeing that show up. by the way, curiously, we've said for backside power, it's also an incremental $1 billion SAM opportunity for us for every 100,000 wafer starts.

And your observation on timing is correct. C.J., that's still kind of in the future on the come line, so to speak, but we're very excited about both and both played to the strength of what we're good at doing. Depositing material and removing material -- etching material.

And so final question on the foundry logic side, but really focusing on advanced packaging. I think you've got that business up 40% this year. Curious, how do you partition kind of your participation across foundry versus HBM?

Both are very important in -- obviously, and you know this, but I'll remind the audience. If you think about HBM growth and you think about advanced compute growing and AI, they all need to go together at a system level, system architecture level, right? You can't do the compute without feeding the compute engine with data. That drives the need for HBM capacity, it drives the need for advanced packaging and foundry and logic. We do the TSV extremely well, extremely strong in the through silicon via process. I call it the drill and fill, right? We etch the interconnect space, and then we deposit the copper conductor material using an electroplating process. That's a tool we call Syndion on the etch side and SABRE 3D on the electroplating side. And as capacity needs grow, we do well because we pretty much own those applications.

So maybe moving to DRAM. How are you thinking about contributions there, both from new capacity greenfield, 1C and beyond kind of transitions as well as the transition to HBM-4.

Yes. All of that is happening. And our position there is doing really well. And again, I think of the need for high bandwidth memory and DRAM specifically as being driven at least incrementally right now by AI compute. And our share there is strong. Our footprint there is strong. The fact that HBM is growing. There's a trade ratio that requires incremental capacity. Yes, it's meaningfully showing up. When I think about the growth drivers of WFE this year, DRAM is probably top of the list.

So when I think about kind of the tremendous demand for DRAM bits and really the lack of available clean room space and the undersupply, I'm hearing new tools being installed, ripping out rec rooms to bring in more clean room space within a facility, upgrading tools because they have better kind of throughput and can deliver incrementally more output. Are you seeing benefits from that? And is there a way to quantify that?

Only that it's the biggest contributor to WFE growth this year, C.J. I don't know we've given specific magnitude relative to anything beyond that. But yes, it's about investment in capacity in HBM. It's about yes, the move to more advanced nodes that enable bit growth with the installed base. It's about upgrading the installed base, which we do quite well when that happens, and it is happening in DRAM. So all of that together is driving the growth in WFE and the growth in our business.

Maybe last question on advanced packaging. How are you competitively positioned with the eventual adoption of hybrid bonding?

Hybrid bonding is enabling of all of the advanced packaging stuff. We don't have a specific hybrid bonding play per se, but we do things around it. And as that grows, obviously, the through silicon via stuff that we do extraordinarily well grows quite nicely.

So would there be anything disruptive by that or no?

Nothing that I would point to, no.

Got you. I skipped one. I want to go back to DRAM. You secured your first win for dry resist, that's low NA EUV with the DRAM player.

Ramping in production right now as we speak, generating real revenue this year.

So how is the customer reaction? And what more importantly is the reaction perhaps of the other 2 multinational DRAM players?

Listen, when everybody knows you're ramping something in production, if they're not the customer ramping it, they're looking at it and trying to understand, okay, am I missing something? Do I need to move more quickly. Listen, I still stand by the numbers that we've described for dry resist, which is as we look at this in total, we see an incremental opportunity cumulatively of $1.5 billion over a 5-year time frame.

The fact that it is ramping in production as we speak is a clear demonstration on the value it delivers, a clear demonstration on the fact that actually there's real value here and it's going to get pulled through from everybody else.

And what does it say that it's 1 layer. Does that mean it's really comfortable with the technology, and we're going to bring it into HVM or is it where they found dry resist, particularly great for 1 area.

I think the fact that you're seeing it ramp in the production 1 layer. That was the highest value application, obviously. Everybody that uses EUV has our hardware in the lab and is evaluating the capability here. That doesn't happen if there's not value here. So again, when we look at it, this is going to broaden itself out. We've announced another tool of record decision from a second customer as well. So the future is good for this, C.J. and this is all incremental business for us. This is business we've never done before. And it's hard to find new addressable market in this industry. It's rare that you find like a brand-new thing outside of your existing SAM, and this is an example where we did.

So I know you're working very closely with ASML on this front. And they've kind of talked about 5 to 6 layers of EUV today in Korea, going to 10 by 2030. I'm not asking you to corroborate those numbers, but more -- do you think that this is a tool where you could secure all layers or would there be...

Probably not on all layers, but if those numbers are even directionally correct, the incremental opportunity grows.

And then maybe to go back to your prior comment, what are you seeing from a dry resist perspective on the foundry logic side?

Yes. Like I said, everybody that uses EUV's got our hardware in their lab and they're looking at the capability.

Got you. Okay. Well, maybe moving to NAND. We're 20 minutes in. First question on NAND, Doug.

Thanks, CJ for like getting to it, but also waiting.

You call for continued strength here. And I think the lion's share of spending is much more layer count increases. So where are we kind of in the upgrade cycle? And are you getting sort of any inkling of more meaningful greenfield investments?

Yes. So the way I've described it, I'll take you back, I don't know, roughly a year ago. Then we were describing a point of view that the industry would, over the next several years, invest $40 billion largely focused on upgrades to get the bit growth that was required.

And I'll also remind you a year ago, I think the industry generally was coalescing around a view that bit demand was in the mid-high teens. And so the world is different now. I think everybody believes bit demand is higher than that. And so when we look at -- well, what happened last year, a lot of upgrades happened last year, C.J., right? Our upgrade business last year grew 90%. A lot of that focused on the NAND set of customers. I think fast forward to where we sit today, that $40 billion likely happens sooner than we previously expected because bit demand is stronger and at some juncture, what we've said is, yes, you're going to need some wafer capacity put in place. When we look at the industry this year, a lot of upgrades happening. When upgrades occur, actually, wafer capacity goes down, you lose wafer capacity because throughput extends.

So that is what we see happening this year that you likely have a reduction in wafer capacity, but at some point, the industry is going to get around to adding capacity, C.J. is our point of view based on the strength of demand and especially related to KV cache driving the need for storage here.

That was the next question. KV cache, Jensen announced GTC Washington. What are your thoughts here? And any work in terms of the incremental bit growth for the industry?

Yes. We've looked at it. I haven't like articulated a bit demand is now this much higher, but it's clearly going to be that much higher. We've done some analytics around for every 2 million accelerators, a percentage of incremental demand for NAND based on this. And again, it's an estimate. Everybody's got slightly different numbers. I think you've got numbers that are also out there, but it's incremental, and we're excited about it. And I'll let my customers describe to what magnitude it ends up showing up.

Wow, so 5-plus points to industry growth potentially.

I guess we'll see. You'll do your own math, everybody would do their own math, but it's clearly incremental.

Maybe moving to margins. You've had multiple quarters now above your calendar '28 target model of 50%. I guess within that, can you discuss a pricing environment? B, what inning are we in, in terms of the benefit from Malaysia facility? And C, are there other tailwinds that we should be thinking about?

I guess the way you wouldn't want people to like jump too far ahead of the model. Yes, we've delivered on it. There's some puts and takes relative to gross margin. But I think we are quite pleased with -- yes, last year, we printed 2 quarters with gross margin above 50%. We just guided to 49%. So we're in that range of the financial model a couple of years ahead of time. And your observations on the contributors to it are exactly right.

We developed a couple of years ago a strategy from a manufacturing supply chain standpoint that we wanted to be close to where the customers were. That's enabled a more efficient cost structure for us that is showing up in the P&L. It's pretty much in the P&L as we speak, C.J. There's not much left there because we've executed on this already. It's starting to asymptote in terms of that. But there's still incremental opportunity. Customer mix is probably a little bit of a headwind this year. If you think about the growth this year, it's the biggest customers, which tend to get the best pricing. And so that's a little bit of a headwind, but we're managing it pretty well right now, I think.

The other thing with the close to customer strategy, the dollars we need to spend on freight logistics, inbound, outbound benefit from being closer. So that shows up as well. But we should still be thinking about 50% is the objective of the company.

And if you look at kind of your downstream customers, their margins are now extraordinary, particularly for the memory players. In this kind of environment and given the value that you add, is there potential willingness to deliver better margins on new products? Or is that challenging?

Listen, you're always working best you can to get paid for the value we're delivering. This year is no exception. Yes, that's part of the calculus certainly. And yes, we're in a good spot.

And we started off the conversation talking about CSBG. And so clearly, there's a bit of a razor, razor blade model for Lam. And so how does that kind of play a role in maybe putting a cap on where gross margins can go on the tool side?

Well, it's certainly part of the thought process, which is when you're winning a position, it's not just, okay, we're selling the tool, there's the spares and the service and the upgrade opportunity that's going to continue into the future. That's certainly part of how we think through, how to put a package for the customer together and make sure they're getting the value, that we're getting the value and it all generally work shot in the portfolio at the end of the day.

Makes sense. You talked earlier about putting development closer to customers. Curious how that might translate into actually knowing your customers' challenges and problems better and feeding back to kind of corporate Lam and being able to bring to market maybe higher productive, more valuable and therefore, higher margin kind of tool set.