Good afternoon. My name is Stephanie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation December Quarter 2025 Earnings Conference Call and Webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Please limit yourself to one question and one follow-up question. Lastly, if you should need operator assistance, please press star zero. Thank you. I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Welcome to the December 2025 quarterly earnings call. I'm joined by our CEO, Rick Wallace, and our CFO, Brent Higgins. We will discuss today's results as well as our March quarter and Calendar 2026 Outlook, which we released after the market close and is available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non-GAAP financial basis unless otherwise specified. All full-year references we make refer to calendar years. The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results. KLA's IR website also contains future investor events, presentations, corporate governance information and links to our SEC filings. Our comments today are subject to risk and uncertainties reflected in the disclosure of risk factors in our SEC filings. Any forward-looking statements, including those we make on the call today, are subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. We will begin the call with Rick providing commentary on the business environment in our quarter, followed by Brian with financial highlights and our outlook. Before I turn the call over to Rick, I wanted to remind everyone that we are hosting our Investor Day on March the 12th, and invitations were recently

emailed out. Now, over to Rick. Thank you, Kevin. I will summarize KLA's overall performance for 2025 and the December quarter, as well as cover the current industry landscape. For 2025, KLA continued to deliver relative growth outperformance along with strong profitability, free cash flow generation and return to shareholders. For 2025, revenue grew 17% to a record $12.745 billion, with our process control systems business outpacing the industry growth by several points. Earnings per share grew 29% year-over-year, demonstrating the strong leverage in our model, and KLA maintained industry-leading gross margins and operating margins of 62.8% and 43.6%, respectively. The company also grew free cash flow 30 percent to $4.4 billion and returned $3 billion in a combination of dividends and share buybacks. KLA's process control system revenue grew 19 percent, and our service business grew 15 percent for the year. And 2025 is expected to be another year of process control share growth for KLA. The demand for AI infrastructure, coupled with KLA's industry leadership and process control, positions the company well in supporting all major growth vectors in semiconductor manufacturing, including advanced logic, high-bandwidth memory, and advanced packaging. In December quarter, KLA delivered strong results across the board with revenue of $3.3 billion, non-GAAP diluted EPS of $8.85, and GAAP diluted EPS of $8.68, sense. Highlights contributing to this performance include 70% year-over-year revenue growth fueled by investment in leading-edge foundry logic and high bandwidth memory and DRAM. AI remains a core driver of KLA's performance and a key factor in our growing industry leadership. As KLA's solutions enable our customers to deliver products needed for AI, our systems are also applying AI-driven analytics to deliver actionable insights that streamline chip manufacturing and accelerate innovation and time to yield for next-generation AI applications. We believe that our experience reflects the compelling capabilities, cost, and power consumption available with GPU-based compute architectures and is fueling the ongoing HPC infrastructure build-out. Looking ahead, KLA's innovations with AI will produce actionable data for our customers that accelerate system performance, reduce the cost of ownership, and improve their return on investment in KLA systems. In the December quarter, KLA continued to grow in advanced packaging. The rising demand for more powerful systems of chips is driving advanced packaging and increasing the value of process control in the chip package, which has fueled significant growth in this expanding market for KLA. KLA continues to see strong momentum in advanced packaging revenue growth and market share with calendar 2025 total systems revenue of approximately $950 million, representing over 70% year-over-year growth. And as we look forward to calendar 2026, we expect this momentum to continue with year-over-year percentage growth expectations in the mid to high teens driven by faster than market growth for our process control products. Haley Services' business grew to $786 million in the December quarter, up 6% sequentially and 18% year-over-year. This was the 16th consecutive year of annual service revenue growth, with a compounded annual growth rate greater than 12% over that time frame. Finally, the December quarter remained strong for both free cash flow and capital returns. Quarterly free cash flow was a record $1.26 billion. Total capital return in the December quarter was $797 million, comprised of $548 million in share repurchase and $250 million in dividends. Total capital returns over the past 12 months was $3 billion. The industry dynamics to support the demand for AI infrastructure reinforce KLA's growing relevance for our customers, and our broad product portfolio plays a critical role in enabling customer success. Additionally, the emerging and fast-growing advanced packaging market further strengthens KLA's relative position. Finally, rising semiconductor content across diverse end markets, coupled with strategic investments and legacy nodes, remains a key driver of dependable, long-term growth for KLA and the semiconductor equipment industry. With that, I'll turn the call over to Bren to discuss the quarter's financial highlights.

Thanks, Rick. KLA's December quarter results reflect strong year-over-year growth with an industry-leading margin profile. The results also exemplify our market leadership, consistent business execution, and the dedication of our global teams in meeting customer commitments. Revenue was $3.3 billion, above the guidance midpoint of $3.225 billion. Non-GAAP diluted EPS was $8.85, and GAAP diluted EPS was $8.68, each above the midpoint of the respective guidance ranges. Gross margin was 62.6%, 60 basis points above the midpoint of guidance due to stronger-than-modeled service performance and manufacturing efficiencies. Operating expenses were $653 million and included $384 million in R&D and $269 million in SG&A. Operating margin was 42.8%. Other income and expense net was $32 million. The quarterly effective tax rate was 15%. At the guided tax rate of 14%, non-GAAP earnings per share would have been $8.99. sense. Non-gap net income was $1.17 billion. Gap net income was $1.15 billion. Cash flow from operations was $1.37 billion. And free cash flow was $1.26 billion. The company had $132 million diluted weighted average shares outstanding for the quarter. The breakdown of revenue by reportable and end markets and major products and regions can be found within the shareholder letter and slides. Moving to the balance sheet, KLA ended the quarter with $5.2 billion in total cash, cash equivalents, and marketable securities, and debt of $5.9 billion. The company has a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies. KLA generates consistent, strong free cash flow, driven by our high-performing operating model. Over the past five years, free cash flow has grown at a 20% compound annual growth rate, above the 16% revenue compound annual growth rate over the same period. This growth, coupled with resiliency across business cycles, helps enable a comprehensive capital return strategy that features double-digit dividend growth and share repurchases to support long-term shareholder value creation. Turning to the outlook, the industry outlook for 2026 has strengthened over the past few months. We expect the core WFE market to grow in the high single to low double digits, reaching the low $120 billion range, up from approximately $110 billion in 2025. In addition, we expect the advanced packaging component of the market to grow at a similar rate to approximately $12 billion for a total market forecast in the mid-$130 billion range, an increase in the low double digits versus our forecast for 2025. Customer spending profile is expected to broaden across all major end markets. Given KLA's strong business momentum, expanding market share, and higher process control intensity at the leading edge across all segments, we begin 2026 well-positioned to outperform and increase our share of the overall market. We are experiencing strong customer momentum that has accelerated over the past three months and is reflected in our system backlog and sales funnel. Our view today is that the first half of 2026 revenue will grow mid-single digits compared to the second half of 2025, with accelerating growth in the second half of the calendar year. Customer lead times for our products are increasing due to supply constraints, limiting first-half growth potential across many of our products. KLA's unique product portfolio differentiation and value proposition are focused on enabling technology transitions, accelerating process node capacity ramps, and ensuring yield entitlement and high-volume manufacturing. The market environment and the complexity of our customers' technology roadmaps are compelling, presenting both challenges and opportunities for KLA to maintain its relative outperformance. In this industry environment, we remain focused on supporting customers, investing for the future, executing product roadmaps, and driving productivity across the enterprise. KLA's March quarter guidance is as follows. Revenue of $3.35 billion, plus or minus $150 million. Foundry logic revenue from semiconductor customers is forecasted to be consistent with the December quarter at approximately 60%, and memory is expected to be approximately 40% of semi-process control systems revenue to semiconductor customers. Within memory, DRAM is expected to be roughly 85% and NAN the remaining 15%. As always, these business mix approximations pertain solely to our semiconductor customers and do not reflect our total semiconductor's process control systems revenue. Gross margin for the quarter is forecasted to be 61.75%, plus or minus one percentage Although volume levels are relatively consistent quarter to quarter, product mix is modestly weaker versus the December quarter. This guidance also includes the incremental impact of the rapidly escalating cost of DRAM chips used in the company's image processing computers that ship with our systems, creating a headwind to our gross margin expectations. This pricing environment has changed profoundly over the past two to three months and has been highlighted regularly in industry press and analyst reports. While we expect this pricing environment to be transitory, current modeling suggests that this situation will persist through 2026 and have a roughly 75 to 100 basis points negative impact on gross margins for the calendar year. As DRAM capacity additions accelerate over the next several quarters, we expect this cost dynamic to improve as we exit the calendar year, and we are modeling a return to a normalized pricing environment for our memory requirements and our longer-term business forecasts. Considering this impact, coupled with product mix and volume expectations, we expect gross margins to be approximately 62 percent, plus or minus 50 basis points, in calendar 2026. Operating expenses are forecasted to be approximately $645 million in the March order. For 2026, we continue to prioritize next-generation product development and company infrastructure investments to support expected revenue growth over the next several years, and we anticipate these expenses to grow by roughly $15 million sequentially throughout the year. Our business model is designed to deliver 40 to 50% incremental operating margin leverage on revenue growth over the long run. Other model assumptions include other income and expense net of approximately $25 million for the March quarter and expected to remain at this quarterly level for the calendar year. For taxes, our established practice is to provide an effective tax rate assumption for the calendar year when providing guidance for the March quarter. Given expectations of geographic distribution of revenue and profit, pillar 2 adoption, and recent tax changes in the United States, the planning tax rate for 2026 is 14.5 percent. We would expect some quarter-to-quarter tax rate variance due to discrete items. For the March quarter, non-GAAP diluted EPS is expected to be $9.08, plus or minus 78 cents, and GAAP-diluted EPS is expected to be $8.85, plus or minus 78 cents. EPS guidance is based on a fully diluted share count of approximately 131.7 million shares. In conclusion, our near-term revenue guidance reflects consistent growth and relative strength. We expect to outperform the market in 2026, driven by multiple tailwinds driving rising process control intensity and growth in advanced packaging. KLA continues to focus on delivering a differentiated product portfolio that addresses customers' technology roadmap requirements and production efficiency objectives, which are driving our longer-term relevance and growth expectations. The KLA operating model guides our best-in-class execution. Our focus on customer success, innovative solutions, and operational excellence drives industry-leading financial performance, enabling us to return capital consistently and predictably. KLA's business is uniquely positioned to capitalize on today's technology inflections and growth drivers. We are encouraged by strengthening customer cost confidence and engagement, which informs our business forecast. The long-term secular trends driving semiconductor industry demand and investments in WFE and advanced packaging are compelling and represent a relative performance opportunity for KLA over the next several years. KLA's business has gone from being primarily indexed to leading-edge R&D investment and fab capacity ramp to now addressing all growth phases in WFV and advanced packaging, enabling leading-edge process development, time to results in fab capacity ramps, and optimizing yield in a high-volume production environment. In addition, the growing investment in custom silicon, particularly among hyperscalers developing their own custom chips, has led to a proliferation of new higher-value design starts and increased demand on our customers to deliver performance, volume, and time to market. As design mix and complexity grows, so does the need for advanced process control. As a result, KLA is seeing consistent growth in process control intensity, as each new chip design requires rigorous inspection, metrology, and yield optimization solutions. KLA is uniquely positioned to benefit from these trends as they expand our market leadership and deliver differentiated value to our customers. That concludes our prepared remarks. Kevin, please begin the Q&A.

Thank you, Bren. Operator, can you please provide the instructions and begin the Q&A session?

Thank you. At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2. We remind you to please unmute your line when introduced, and if possible, pick up your handset for optimal sound quality. In the interest of time, we ask you please limit yourself to one question and one follow-up. We'll now take our first question from Vivek Arya with Bank of America Securities.

Thanks for taking my question. For the first one, you know, your forecast for WSE for this year, you know, yesterday your peer reported and suggested that WSE could grow over 20%. I think they said 23%. And you were suggesting something in the high singles to low double. So I was hoping you could clarify what is kind of the apples-to-apples inclusion or exclusion. And then part of that, you know, you're suggesting advanced packaging only grows, I think, in that same pace, high single to low double. But that's very surprising given how far the AI market is growing and just the correlation of that advanced packaging market to AI. So basically, if you could just give us apples to apples, you know, why such a big disconnect between your view of WFE growth versus what your peers suggested yesterday?

Hey, Rebecca, it's Bren. So I did talk about this a little bit in the letter, but I think one of the issues that has become a little bit noisy over the last couple of years has been the rise of advanced packaging as a market. And the inclusion of it in WFE forecast, and I think you and I talked about this in your conference back in June, was that, you know, what do people exactly include in these numbers? And it varies a little bit across analysts and across companies. If you look at our forecast, our view on consistent traditional core WFE in 2025 was around approximately, and we'll see how people report, but approximately $110 billion. and that the advanced packaging market as we look at it, the total market, is roughly in that $11 billion range. So we'll call it the low 120s. As we look at 2026, looking at it in the same way, we see advanced packaging growing somewhere in excess of $12 billion. So it'll probably be in double digits. We'll see. It tends to be a quicker turn business. So we'll see how that plays out. And that core WFE is rising from 110, as we said, to about somewhere in the low 120s. So I think when you add the two together, you end up in the mid-130s, which is, I think, consistent with what Lam said yesterday. But that's how to think about the market. I don't know how they think about it and what they include and what they don't. We try to capture all elements of the market as it relates to process and process control. And so that's how we look at it overall in terms of what happens on the wafer, film frame, advanced component, and so on. So that's how we see it. Hopefully that helps.

And one, Vic, Rick, just to add one part of that, the question on the growth of packaging, when we're talking to our customers, they are frustrated with the shells that they have available. So part of what's slowing down the growth this year is their ability to have their factories built. So that's why we'll see a lot more growth in 27 as a result of that. There is demand, but I think it's a matter of getting the facilities ready, which is a theme generally right now with our customers.

So I think I'm going to go forward. We're just going to aggregate it, and I think maybe that helps. But what I tried to do was provide over the last several months or so some disaggregated view of what's traditional core WFE, the same WFE we've looked at over the last multiple decades, and what the advanced packaging market looks like as you add the two together. And you get to the mid-130s as we look at 2026.

And for my follow-up, just kind of two clarifications. One is, what's your assumption of China, WFE, kind of absolute percentage growth? You know, how much was China WFE as part of that, you know, $120-plus billion in your definition, kind of all in WFE? How much was China? And then what are your assumptions about what China would do this year? And then how much are your supply constraints limiting your growth? Is there a way to quantify, right, how much growth you're kind of leaving on the table because of your, you know, where are those supply constraints and how much are they limiting your growth this year? Thank you.

All right. There's a lot in there. For China, our expectation is that China is flattish, maybe slightly positive, modest growth in 2026. It was modestly negative in 2025. For the company, as a percent of our revenue, we think it'll be somewhere in the mid-20% to high-20% range as we look at it. I think if you look at the total China WFE inclusive of the restricted fabs, we see China somewhere in the, we'll call it in the mid, maybe mid $30 billion range, mid to high $30 billion range in 2026.

Anything on supply constraints?

Look, I think as it relates to the first half, we're virtually sold out across most of our products. Given the lead time of our products, our decisions that were driving the first half were decisions made in the middle of 2025, generally. As we move into the second half, and as we talked about the prepared remarks, we see the second half accelerating versus the first half. We have a little bit more flexibility. But there are constraints in terms of what our customers are asking for. We're seeing our lead times extend. There are facility readiness dynamics that will play a role in terms of timing of shipments. The one good thing is, is that given all the new facility or greenfield visibility we have, it does give us pretty good confidence as we look out into 2027. And most of our conversations today about new orders are for deliveries late in 26 and into 27. So it's pretty clear from a visibility point of view. We feel pretty good about our ability to ramp the business. I think if you look back to 2022, I think we did a pretty good job in terms of ramping to support a pretty robust environment. And so I think that, you know, that those practices and our investments and how we manage our supply chain will play through in terms of our ability to satisfy demand as we look out over the next 12 to 24 months.

Thank you. We'll take our next question from Harlan, sir, with J.P. Morgan.

Good afternoon. Thanks for taking my question. Your core process control systems business delivered yet another strong year of WFE outperformance. I think it grew 20% versus 2025 WFE of like plus 10 to 12. Within this inspection, significantly outperformed yet again for like the third or I can't remember fourth or consecutive year growing 25%, patterning growing 12%. How are you guys thinking about the growth in inspection and patterning relative to overall WFE view of sort of low teams growth this year? I mean, given the focus on yield and manufacturability, would you expect a similar level or more of outperformance and process control for calendar 26?

Yeah, Harlan, Srik, thank you. I think recognizing the outperformance, I think we're feeling really good about the trends that we're seeing, especially in inspection and especially as they relate to the BBP products. And to Bren's point, I think, you know, we've been trying to add capacity in that product line and probably we're going to need it based on our conversations with customers. So I think there'll be continued growth. And everything about what we're seeing in the build-out for AI, Bren talked about the increased designs, the larger die, and now what we're seeing in HBM, which has become a huge driver, And in many ways, a bigger story is the change in intensity around memory has been pretty dramatic in terms of if we look back the last couple of years and the heavy usage of advanced inspection to support that. So it's good. I mean, we're looking at a modeling as we go forward, and our customers have told us 26 is expansion and setting the stage for even more expansion than 27. And so we think we'll continue to see strong growth associated with that. I think that the capacity, I mean, metrology is historically a little closer tied to some of the capacity. So, you know, we'll see some relative recovery. And then reticle is going to be very strong because it's so tied to the number of design starts and the challenges associated with advanced maps.

Brent, am I missing anything? Yeah, I think to your question about relative performance, I think despite the more mix related to memory, as Rick talked about, our performance in HBM is changing the intensity profile. And so we feel pretty good about our ability to sustain the multi-year outperformance that we've seen. So I think it's pretty exciting. The portfolio is in a really good place from an overall share point of view. And we're seeing intensity rise in a number of markets. So we feel pretty good about it.

Great. Thank you for that. And from my follow-up, it's pretty well understood that on all these new sort of advanced technology transitions, you do need a lot more inspection and metrology capabilities, right? But on top of that, given the industry's chip supply tightness, your customers are looking to even further squeeze more supply for a given sort of current installed base. I'm wondering, and so they're focused just as much on technology transition, but on the existing capacity footprint, trying to drive more supply via yield improvement, better manufacturability. I'm wondering if this is also driving incremental demand for your process control solution?

Yeah, certainly. I mean, we have seen in some cases back penetration of technologies once the recognition was that two things have happened. In some cases, if you go back in time, they'd move from one technology to the next and not really pay much attention to the prior. Now there's more demand at the prior, and if they're getting advantages in the capabilities in the latest technology node, we see back penetration to squeeze out, to your point, more yield. Right now, because of the constraints, and I think if you – when we talk to all our customers, we hear a common theme is they're constrained by the ability to build new fabs and new shells. So, to your point, they're, for the most part, trying to do everything they can to optimize. And then the pricing environment is such for them that that additional yield is worth more. And so, that's the other factor that's driving them.

Thanks, Rick.

Thank you. We'll take our next question from Joe Quadracchi with Wells Fargo.

Yeah, thanks for taking the question. Maybe just kind of understand the supply constraints that you're seeing in the first half. Any way that you can kind of help us understand just, you know, what could growth has potentially kind of been first half or second half if you didn't have those supply constraints? And then is it mostly just DRAM, or is it also other components like optics and things?

Well, Joe, the biggest long lead time aspect of our build of material is an optical component. So to my earlier point about the lead time for that tends to be pretty long. So that does, you know, like I said, we were making decisions last summer that was affecting what we expect to shift in the first half of the year. So that's probably the biggest factor. We don't really look at what we could have done. Certainly in the last few months, we've seen a strengthening from customers for more demand in the first half. And so, I mean, the good thing about our differentiation in our market position is that we can balance pretty well across our customers to make sure that we're trying to meet their needs. At the same time, we're not, you know, we're not missing business or losing business. So our lead times are extending. Our customers know that. And so we're managing it accordingly. So I don't think, you know, I go, oh, I could have done this or I could have done that. It's, you know, what can you do? And so, you know, I think that that's the nature of our conversations with customers, and then we look to improve as we can. As we move in the second half of 26, we will see the business accelerate. I would expect, you know, second half to single, maybe low double-digit type growth as we move into the second half.

You have to remember, if we moved independently, if we could supply everything everybody wanted right away, it still would be a limit. There are other factors that limit their ability to ramp these fabs. So our customers, when we talk to them, are having the same conversation with our peers that they're having with us because collectively they need all the equipment in order to be able to ramp. And so the frustration for a lot of them now is they've got demand, and in some cases they don't even have the ability to build the shelves as fast as they want and then fill it out. So to Bren's point, you know, collectively, we're all being asked to accelerate equipment delivery, but it's not really because we don't have BVP that we're missing out. It's part of their overall solution. So when we talk to them, they really want to prioritize when they get that equipment to be able to facilitate it. But we're not going to lose share because of it.

That's helpful. And then as a follow-up, just trying to understand, like, the kind of trajectory of gross margin. I mean, it seems like maybe based on the guidance, March is kind of the bottom and we move higher from here. And anything you can share on just the ability to, like, pass through higher component costs or reprice your backlog?

Yeah, so I think you're right. It looks like March is probably the low point for the year as that goes. And as we move across the year, we'll see it increment up. We're going to be, you know, our first priority as it relates to memory supply is to carry our delivery commitments and support our customers. That's our primary focus. We also would expect that the tariff burden as we progress through 2026, given some of the process things we're doing within the company, will also diminish in terms of its impact related to tariffs. We're closer to the top end of that range today, and we'll see that come down, I think, over time. So as it relates, I thought it was important to give you some sense of it in terms of the expectations for the year, 62 percent plus or minus 50 basis points. We think the memory situation is transitory. And really, as it relates to how we price our products, it's much more of a value-oriented pricing model and less about cost movement, We continue to maintain the product in terms of launching new products and variants of new products, and that gives us an opportunity to enhance our cost of ownership, offering to our customers, add new capability, and also take into consideration some of these dynamics around costs that we've been dealing with for some time, starting with some of the pretty significant inflation just a few years ago to this issue today. So that's how we're thinking about it right now.

Helpful. Thank you, Joe.

Thank you. We'll take our next question from C.J. Mews with Cantor Fitzgerald. C.J., if you muted your phone, please unmute.

Apologies. Thank you for taking the question. I guess first question on gross margins, you know, how are you thinking about the progression, you know, through the year, you know, given the overall got at 62 percent? And then, you know, more importantly, you know, I guess what are your thoughts around 2027 and, you know, the ability to kind of pass along the higher DRAM costs, which I don't assume will go away anytime soon. And I guess as you deliver kind of newer products, you know, what impact should that have on incremental gross margins into next year?

Yeah, so over the course of the rest of this year, I think that margins, you know, look, product mix is probably the biggest factor in quarter-to-quarter variability, but I would expect gross margins to trend north, part of it being our expectations around mix here, but also expected increases in overall volume. So I think that there's some scale benefits that we'll see that will flow through. Over the long run, I feel pretty comfortable with, as we talked about, our model that we presented our last investor day of 63% plus type gross margin profile, I feel still very good about that. And given the mix of our business, the growth rates of service and so on. So I think as we look into 2027, I would expect to see gross margins continue on kind of an incremental cadence from where they are. And, you know, I feel pretty good about, you know, 63% plus at normalization in some of these cost areas.

And then I wanted to focus on DRAM. I think your share of wallet historically has been kind of 7%, 8%, 9%, depending on the year. But curious now with HBM, particularly as we evolve to HBM4 and 4E, you know, how do you see that share kind of progressing in 26 and 27? Thanks so much.

I think technologically there's a lot of reasons to explain why we're seeing higher adoption. One we've talked about before is less redundancy. The value of these devices is higher, so there's less willingness to give away real estate to redundancy. Because you've got to move so much data in and out, there's more metalization layers, which require more inspection. And then the increased use of the advanced lithography, which requires an EUV more inspection. So all those things are driving up the intensity of DRAM, and it looks much more similar to what Logic did not that long ago. So I think all those issues are driving that, and we feel really good about that going forward as we're engaging with customers and they're seeing the benefits of, for many of them, they haven't been employing a lot of process control like this in most of their working lifetime. So we're seeing them getting used to

that and coming to us for more capability. I think the other thing is the process variability flexibility in the past, they don't have the ability to do that. So that's driving more rigor around ensuring that each of the devices in the stacks performs to pretty tight specs. The demand environment is also driving opportunities in our service business as customers look to keep these tools up to have maximum uptime to ensure good performance, where in the past with redundancy, you might see less contract penetration. We think it's a growth opportunity here moving forward, given the nature of these devices and their requirements.

Thank you. We'll take our next question from Shane Brett with Morgan Stanley.

Thank you for letting me ask a question. My first question, I just wanted to follow up on CJ's question earlier, but you've previously talked about DRAM process control intensity increasing 100 basis points with EUV and another 100 basis points with HBM. But is there a world in which DRAM process control intensity just really gets close to advanced logic? Thank you.

Well, it's still a ways away from advanced logic, given the high mix of designs. And so that's, I think, the biggest issue that you see in advanced logic that's different than by what we're seeing. We'll see how this plays out with more UV layers and so on in DRAM devices. So we think that it's just the market requirements are driving more inspection, more metrology, and we think that will be a positive trend. And I'm not sure I'm ready to commit to something that looks like advanced logic, just given the nature of those devices and the differences in a logic fab versus memory.

Got it. And my follow-up is on Foundry Logic. So you've called out a broadening of Foundry customers over the last year, and it's clearly materializing with your customers' CapEx announcements. But could you talk about the process control intensity of these customers and just how good can leading-edge logic for you be this year?

I'll start in the left-hand field. And we are seeing the broadening. We're definitely seeing the intensity. I think to Brent's point, there's a couple of factors that you have to look at, maybe three, really. One is the technology node, and a big factor is die size, and then another one is the mix. And so if you have a company that's doing advanced logic, but they're not on large die and they're not high mix, that intensity is just not going to be as high as if you have somebody that's doing all three. In order to be competitive, they're increasing it. So we kind of modeled that going forward, and we'll lay this out in a lot more detail when we look at our 2030 conversation at the Analyst Day. But we are seeing it going up for this year. And when we talk to our customers in Advanced Logic, even they are talking about it depends. It depends on if they get more customers. It depends on how much more capacity they need. Then their investments will follow based on that. So it's a little hard for us to judge what that's going to end up being.

Thank you, Shane.

Thank you. We'll take our next question from Timothy Akiri with UBS.

Mid-single digits, half-on-half versus the back half of last year. But I think you made a comment answering a question about high single digits.

Tim, do you mind starting over? I think when you began your question, you were kind of like right in the middle, so we didn't pick up the start of the question. And I didn't want you to finish and then have to do it again.

Okay, perfect. So, Bren, we know you said the first half of this year is going to be at mid-singles versus the back half of last year. So we know what June is. June's like 3-6 and change. I think in answering a question, you said high singles to low doubles. And I think you meant the back half of the year. Is that a half-on-half comment? Because that would sort of imply that the calendar back half would be something like $7.5 billion. And I ask because that's not up that much versus the $3.6 that you're saying for June.

Tim, so there was a half-to-half statement I said. So we'll see how it plays out, right? I'm not going to guide specifically with more detail. I tried to give you a sense of our expectations of growth in the second half of the year. And I think it's likely in that sort of high single, low double range for now. So we'll see how things play out as we move forward.

Okay. And then advanced packaging, I think unless I look back through the transcripts, I thought last quarter on the October call, I thought the expectation was that the advanced packaging market this year would grow more than 20%. And now I think you're saying mid to high teens. Did the market downtick or did stuff pull in? Or, you know, maybe I'm just parsing numbers, but I'm just kind of wondering if, like, something changed.

No, we're pretty encouraged by what we're seeing in the market. You know, it's not a large market, so the percentages can move around a fair amount. We're very encouraged by what we're seeing from a share point of view across the market. So, you know, we'll see. You know, I tried to provide some context. I think it's, you know, it's likely in that, you know, we'll call it 10% to 20% range. And so that's why, you know, we said what we said. What's interesting about our process control position in that market, if you go back to You know, 2021 and process control, we were roughly 10% of that market. That overall market was what I called a rounding error in terms of how you thought about WFE. But now as you look at the size of the market and the opportunity that's there, it is now becoming part of what I think is this core overall equipment market. Our share was, you know, down in the 10% range. I think when you look at 2025, we're close to half the market in share. And I think in 2026, we feel pretty good about our prospects moving forward. So it's a great opportunity. There's a lot of advancement that's happening there. Sampling rates are high. And we have a broader portfolio that we think customers will start to leverage more as we move forward. So it's a pretty, I think, exciting market. And, you know, we have great drivers within what I call traditional WFE. and we have this evolving SAM that we think will augment our growth here moving forward.

Okay.

Thank you. We'll take our next question from Chris Casso with Wolf Research.

Yes, thank you. I guess the first question would be characterizing the relative growth of memory versus foundry logic for this year. And I recognize that, you know, a lot of that probably has to do with clean room space constraints, as you said, but how do you think it shapes up for this year and then particularly in the second

half of the year as some of the revenue starts to improve? Well, I think that certainly the DRAM part of the market will grow faster than Foundry Logic will grow, driven mostly by the demands for HBM, but also, as we've talked about, the challenges in conventional memory as well. So the way we're modeling is we think overall Foundry Logic is up 10% to 15% for the year from a WFE point of view, and that, you know, the DRAM part of the market is probably, you know, 15 to 20 percent versus last year. Flash, a little harder to pin. I think it's slower than DRAM. It's off a lower – it's a lower base, so, you know, a lower number. I think the biggest, at least from our point of view, I mean, certainly the biggest drivers for the – for WFE this year and from a growth point of view overall is what's happening in Advanced Logic and what we're seeing in the D-brand market.

Thank you. As a follow-up, I think you've talked about 12% to 14% kind of normalized service growth. Given the rising utilization rates, the fact that the folks are a bit tight now, how does that affect the service growth for both 26% and as you kind of start into 27%?

Well, there's a number of factors that are driving growth, certainly to your point. I mean, higher utilizations. I mean, our tools tend to stay very well utilized, no matter where customer overall utilizations are, because it's the best way to manage capital, even in downturns, is to drive yield. So our customers, in terms of how they buy our systems, is they buy them, they run them at very high uptime, and the value is in the performance of the systems and matching performance in terms of information on defectivity and metrology and so on. So the growth expectations of the growing install base, this install base living longer, opportunities for where things are tighter in the market, opportunities around memory, as I talked about earlier, opportunities in packaging, and then growing streams in our acquired businesses where we think we can leverage the infrastructure of KLA to drive revenue growth and service out of requirements for growth here moving forward. So we feel very confident about the 12% to 14% go-forward target model for service revenue. And I think there are a lot of drivers that suggest we can operate at the higher end of the range versus the lower over. Thank you.

Thank you. We'll take our next question from Jim Schneider with Goldman Sachs.

Thanks. Good afternoon. And thanks for taking my question. I was wondering if you could maybe you'd provide a little bit more precision. Following on the last question, do you expect that, I mean, clearly you expect DRAM to be stronger in the short term, but do you expect the growth and foundry logic to actually expand substantially into the back half of the year such that those growth rates would be closer to matched or not? I'm just trying to think about how that plays out in terms of process control intensity for you over the course of this year. Thank you.

Yeah, so I can't comment exactly on where the overall industry levels will be. I mean, certainly as it relates to KLA's business, I would expect the foundry logic part of our business to be, you know, kind of stronger in the second half than the first half right now. but it is, you know, I think it's pretty fluid and there's, I think, kind of consistent growth expectations, you know, half to half across both segments. Well, and we know from public comments

some of our customers have made that they, right, so their ability to ramp, I'm sure they're going to do everything they can to pull that in, but I think we're going to see in the Foundry Logic space. The setup for 27 is pretty remarkable. We'll see more, I think, late in 26 as they have the opportunity. But there's a lot of discussions already about preparing

us, the equipment supply companies, for 27. That's helpful. And then maybe as a follow-up, relative to the China market, you outlined your expectations for WFE growth there. But I'm wondering, in terms of the competitive landscape, you have a very, very strong portfolio sort of across the board in your product space. Have you heard any kind of incremental interest from your customers in China or from the government in terms of promoting more onshore solutions there? Thank you.

Well, I think that, you know, to the degree where we can compete, we continue to offer capabilities that customers want. I think the biggest constraint we have and the biggest challenge we have sometimes in China is when we're not permitted to sell, but alternative non-U.S. companies are permitted to sell to the same customers. And those are conversations we've had with the government. We're not going to opine on those decisions overall, which companies are on that list. In terms of competition from China, I think there's been more progress made, quite a bit more in the process tools than there has been in either lithography or in process control, largely because of the technology required to do that. So we feel pretty good about competing anywhere in the world, including China. And what we push for in the cases where we've had some unfair disadvantages, we just want a level playing field as it pertains to actions taken by the government. Thank you.

Thank you. We'll take our next question from Chris Sankar with TD Gallen.

Hi, this is Robert Burns on the line for Chris. Thank you for taking my questions. I know you've talked a good amount on some of the previous questions, but just in terms of these capacity constraints, are there any areas of the market that are larger pain points in your ability to ship tools to? And any areas where potentially you could be constrained and would need more capacity? once Foundry and Logic takes off more in calendar year 27?

I mean, if you think about this, Rick, if you think about our portfolio, we by and large shift the same products, same kind of products for advanced technologies, whether it's memory or Foundry Logic. So it's not like we're constrained to support the memory guys or the logic guys. It's more the thing Bren talked about where optics is an example where you only have so much capacity over time, and you can add it, but you can't add it quickly because it takes a lot of work to increase the output of very complex optics. So it's more product-specific to our products than it is customers.

And I guess the only other thing I'd add to that is what's driving the market today is really, you know, leading-edge demand. And so, you know, it isn't like we, you know, when we went through 23 and 24 with more legacy products where you had a broader mix of products, what customers want today are leading-edge solutions. And so that's where most of the focus is.

Thank you. And then your DRAM shipments were particularly strong this quarter. I think you had mentioned in the last call you expected them to be up. But were there any shifts in your view over the quarter, and what sort of demand visibility do you have into that market for this year?

Yeah, as we said earlier, I mean, certainly over the last few months, we've seen fundamentals of overall equipment spending strengthen and certainly a desire by our customers to get tools sooner rather than later. So we've tried to manage our way around that, and the demand is broad-based. So I would say that overall demand has strengthened the last few months in that part of the market, the whole part of the market, all markets.

Got it. Thank you.

Thank you, Robert.

Thank you. We'll take our next question from Stacy Rascon with Bernstein Research.

Hi, guys. Thanks for taking my questions. For my first one, I want to ask Tim's question a slightly different way. So you gave the guidance for the first half, which kind of gives me June. And, again, if I'm modeling, you said high savings or low double, the second half would be up, you know, call it 10%. That would put it, mine now suggests that kind of total revenue is up, I don't know, 12%, 13%, which is about what you're suggesting the whole WP market is growing. So, like, you said you're gaining share, so why wouldn't that number be higher? Like, where is the share gains given that half over half in the second half that you're talking about?

Well, so, Stacey, I mean, part of this is the blended numbers, right? So you're getting that, you know, when we talk about share gain overall, we're looking at our semiconductor process control business in terms of its relative performance against the total equipment market. So there is that. You know, again, I allow you to do the work. I'm not going to guide the full year to that level of precision. I will say that we feel very good about our ability to grow faster than the market. And, you know, you've got service element, you've got our non-semi elements that are, you know, are also factors.

Okay, because, I mean, services is growing about that much as well. You said 12% to 14%. And I just feel like that half over half, maybe there's just conservatism built into it, but it feels like, like I said, call it 10% or whatever feels light. Anyways, so my second question, just around China, you know, the last time you reported it was after the affiliate rule had been put in place and before it was taken off. What are your thoughts on, I guess, recovery of that revenue and, like, how does that bake in to your thoughts on China revenue next year? Because to my mind, like, I don't know if your China guidance for next year now is higher than it was last quarter or not, but presumably some of that affiliate revenue should be coming back.

yeah i i would have uh i think back uh three months ago we thought china'd be you know modestly down and now i think it's uh it's going to be up for us this year so that business has you know come back in and feathered through is in our forecast and and in some of the commentary

provided here and how much was that again was i can't remember three three hundred million three

hundred and fifty i can't remember yeah in that ballpark it was some service elements but yeah

in that ballpark got it okay that's helpful thank you guys thank you we do have time for

one additional questioner we'll take our final question from tom o'malley with barclays

hey guys thanks for taking my question uh as i look out you talk about more share gains where should i be paying attention is that more on the leading edge boundary logic side is that more in the advanced packaging side just because to stacy's question right like you're talking about a quarter of you that you're growing in line with maybe you're being a little conservative to start the air and end up beating that as we go along. But I would imagine if you include advanced packaging as well, that's an area where you've had a lot of strength. So I would imagine that would accelerate the growth rate. Maybe explain where you're seeing those share gains. Is it more so on the AP side or on the leading edge financial logic side? Well, we're certainly seeing share

gains in AP, as I talked about earlier. I think there's a lot of positive momentum there. I think we've done extremely well in logic, and I think there's a lot of momentum on the memory side. As it relates to the overall business, I wouldn't say, you know, our share is pretty consistent. across the different segments. I mean, so it really comes down to our products. And reticle inspections had a really strong year. We think that that's part of the market's inflecting. We're doing pretty well there. We see some positive momentum in our electron beam businesses. And so we think that that's a positive here moving forward as well. So I think between what's happening in packaging, what's happening in e-beam, what's happening in reticle, our largest businesses like our broadband plasma, it's a market that's growing faster and we have a strong share. So we'll influence the overall share numbers just because of the relative growth rate of that segment versus other parts of the market. So those are the areas we feel pretty good about our share position here in 2025 in terms of gaining share. And we think that, you know, we'll continue to increment what has been, it was a really strong share position, we'll continue to increment here moving forward, given the nature of the portfolio and our ability to compete meeting customers technical requirements and their cost requirements being able to leverage the network effect across the systems so we think that that is you know enhances our competitive offerings and positions as well here moving forward from a share super helpful and if i

may just a really quick follow-up um your competitor talked about uh the different vectors of market growth into their guidance for wp in 2026 and said boundary logic good growth, DRAM good growth, but NAND a bit below that. I was curious if you agree with that assessment when you look at the broader market. And then obviously you're hearing some NAND guys report tonight, maybe talking a bit more aggressively about spend. Do you think that as this year goes along, maybe that view can change if you see an acceleration a bit more quickly on the NAND side from a technology transition perspective or some greenfield capacity? I know it's a smaller business for you, but interested in your thoughts. I think the challenge, given

the constraints in the industry around how much can actually be supplied. You know, any new demand that's showing up today, as I said earlier, in terms of our is more about 27 deliveries.

Also, they're not a competitor. They're a peer. We have enough competitors.

Thank you, Tom. All right. I wanted just to thank everyone for their time. I know it's a very busy earnings season and a very busy earnings day. We look forward to seeing hopefully many of you at our Investor Day in New York on March the 12th. And with that, I'll turn it back to the operator for any final instructions.

Thank you. This concludes the KLA Corporation December Quarter 2025 Earnings Call and Webcast. Please disconnect your line at this time.