Kla Corp (KLAC) Q4 2026 Earnings Call Transcript

Good afternoon. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June quarter 2026 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 would 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. Lastly, if you should need operator assistance, please press star 0. Thank you. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Welcome to the June 2026 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 outlook, which we released after the market closed 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. It should also be noted that effective June 11, 2026, KLA completed a 10-for-1 stock split. All current and prior EPS and other per-share amounts referenced on this call and our materials have been adjusted to reflect the split. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings. Any forward-looking statements, including those we make on the call today, are also subject to those risks, KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. For any subsequent updates, please refer to KLA's IR website, which also contains investor events, presentations, corporate governance information, and links to our SEC filings. We will begin the call with Rick providing commentary on the quarter and our overall business environment, followed by Bren with financial highlights and our outlook. Now, over to Rick.

Thanks, Kevin. For the June quarter, KLA results were strong with revenue, profitability, and earnings for share all above the midpoint of guidance. Specifically, revenue reached a record $3.66 billion, supported by accelerating investment tied to AI infrastructure, continued strength in leading-edge foundry logic, and increasing process control intensity across memory and advanced packaging. These results continue to underscore KLA's market leadership, and the growing strategic importance of process control as semiconductor innovation becomes more complex. The industry is in a period of accelerating investment driven by AI compute, a robust design environment, larger and more sophisticated device architectures, rising HVM adoption, and increased advanced packaging requirements. Across these inflection points, customers are relying on KLA's portfolio of systems, services, and expertise to accelerate yield learning, improve productivity, and scale new technologies into high-volume manufacturing. KLA remains uniquely positioned on the critical path of AI infrastructure expansion, where the increasing number and sophistication of leading-edge designs that are consuming a growing percentage of new wafer starts are driving greater demand for process control. The rapid expansion of the AI ecosystem requires more advanced logic and memory, new complex manufacturing and packaging flows, and additional KLA systems and services to ramp, yield, and sustain high-volume production. Since our March Investor Day, demand signals across AI infrastructure have strengthened materially, supported by accelerating, hyperscale data center investment, rising AI compute requirements, and broader adoption of AI-enabled applications. Customer engagements remain robust, visibility continues to improve, and the wave of equipment market outlook continues to expand. We expect momentum across our business to accelerate through the second half of calendar 2026 and for significant growth to continue in calendar 2027. In highlighting KLA's unique position in the market, AI-driven design activity and HVM adoption are only part of the process control story. Process control intensity has increased due to faster product cycles, higher value wafer and mask, more rigorous device performance specifications, growing design variability, We now expect our advanced packaging process control systems revenue to grow to approximately $1.1 billion in calendar 2026, up more than 70% year-over-year, above our prior expectations of high 50% growth, and almost two times faster than the advanced packaging market. Outside of our core semiconductor process control business, high-performance compute packages and integration are also driving our specialty process, PCB, and component inspection businesses, augmenting the company's growth momentum. KLA entered many of these markets in 2019 as part of the Orbitek acquisition. Our investment thesis for the transaction was centered around the rising value of the chip package and the ability for the KLA operating model to drive product strategy, business execution, to take advantage of this evolving trend. With these combined products expected to grow over 25% in calendar 2026, we are encouraged by the future opportunities in these markets. Finally, in the quarter, KLA services delivered $820 million in revenue, up 17% year-over-year, as customers rely on KLA to maximize tool performance, productivity, and availability across a growing installed base. In summary, our June quarter results demonstrate the strength of KLA's market position and operating model execution. Looking ahead, customer engagement and demand signals continue to strengthen, and we are adding capacity to support expected demand. Growth is accelerating in the second half and are well-positioned to execute in a strong demand environment across all segments over the remainder of calendar 2026 and into calendar 2027. And with that, I'll turn the call over to Bren to discuss the quarter's financial highlights.

Thanks, Rick. Eric. KLE's June quarter results reflect strong sequential and year-over-year growth in an industry-leading profitability profile. This reinforces our market leadership and consistent execution, which is made possible by the dedication of our customer-focused global teams. Revenue of $3.66 billion was above the midpoint of guidance of $3.575 billion and rose 7% sequentially and 15% year-over-year. Non-GAAP diluted EPS was a dollar $1.05, and GAAP diluted DPS was $1.04, each at the upper end of the respective guidance ranges. Gross margin was 62.4%. This was also at the upper end of our guidance range, driven by a more favorable services mix than model, and manufacturing scale that served as positive offsets to the challenging memory pricing environment and tariff headwinds. Operating Operating expenses were $682 million and included $399 million in R&D and $283 million in SG&A. Operating margin was 43.7%. Incremental operating margin in the quarter was 59%. Non-gap net income was $1.39 billion. Gap net income was $1.36 billion. Cash flow from operations was $906 million, And free cash flow was $817 million. The company had $1.315 billion diluted weighted average shares outstanding for the quarter. The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides. Switching to the balance sheet, KLA ended the quarter with $4.9 billion in total cash, cash equivalents and marketable securities, and $5.9 billion of debt. The company maintains a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies. KLA's strong cash generation continues to support meaningful capital return to shareholders. In the June quarter, free cash flow was $817 million, and KLA returned $876 million to shareholders, including $571 million in share repurchases and $305 million in dividends. Over the past 12 months, total capital returns were $3.3 billion, and free cash flow margin was 28%. ALA has made meaningful investments in our working capital and facilities to support the current growth environment. Given the expected aggregate investment in wafer equipment over the next several years, our expectation is that these investments will continue to ensure that the company is positioned to take advantage of the strong market opportunity and deliver on our customer commitments. This consistent cash generation, combined with our disciplined approach to capital allocation, supports investment and future growth opportunities while delivering attractive returns to shareholders. The industry outlook for 2026 and 2027 continues to improve with visibility extending. Despite well-chronicled fab space limitations, we continue to see the market for wafer equipment strengthening as customers accelerate their delivery As a result, we're raising our expectation for the wafer equipment market, including advanced packaging, to approximately the low $150 billion range in calendar 2026, up from our prior expectation of $140 billion plus and mid-20% growth above the approximate $120 billion level in calendar 2025. Given the unprecedented visibility from customers, we continue to plan for for significant growth in calendar 2027 as broad-based investment across leading-edge Logic, Foundry, DRAM, both conventional and HVM, NAND, and advanced packaging drives continued capacity expansion. Customer engagement remains intense with numerous new fab projects and Greenfield facilities actively underway. Against this backdrop, KLA's business momentum and critical role in leading-edge process control positions us to deliver accelerating growth In the second half of calendar 26 and continued strong growth in 2027. High-performance computing, HBM, increasing EUV adoption and DRAM, and recently adopted advanced packaging technologies such as hybrid bonding are driving higher process control intensity across the semiconductor ecosystem. Our expectations of revenue growth acceleration in the second half of 2026 are materializing as more capacity comes online in our long lead time supply chain areas. We anticipate this resulting in second half of calendar 2026 growth for KLA over the first half to be approximately 20% and positioning the company for continued sequential growth into calendar 2027. KLA's September quarter guidance is for revenue of $4 billion, plus or minus $200 million. Foundry logic revenue from semiconductor customers is forecasted to increase to approximately 73%, and memory is expected to be approximately 27% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM is expected to account for approximately 90%, with NAND representing the remaining 10%. As a reminder, these business mix approximations pertain solely to our semiconductor customers and do not fully reflect our total semiconductor process control system's revenue. Gross margin for the September quarter is forecasted to be 62.5 percent, plus or minus one percentage point. While guidance is roughly flat sequentially with results, it is up 75 basis points from gross margin guidance last quarter, benefiting from operating leverage on revenue We will 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 to $20 million sequentially over the next several quarters. Our business model is designed to deliver 40% to 50% incremental operating margin leverage on revenue growth over the last few years. Other model assumptions include other income and expense net of approximately $25 million expense for the September quarter, and we expect it to remain at approximately this quarterly level for the calendar year. Our planning tax rate is 14.5 percent, and our tax rate will vary quarter to quarter due to discrete items. For the September quarter, non-GAAP diluted EPS is expected to be $1.16, plus or minus 10 cents, and GAAP-diluted EPS is expected to be $1.14, plus or minus 10 cents. EPS guidance is based on a fully diluted share count of approximately 1.312 billion shares. In conclusion, KLA enters the second half of calendar 2026 with strengthening momentum, expanding visibility, and a broader set of The growth drivers across the semiconductor ecosystem. The acceleration of AI infrastructure investment, the rising complexity of leading-edge logic and memory devices, the rapid adoption of HBM, and the increasing importance of advanced packaging are all raising the strategic value of process control. These trends reinforce KLA's critical role in helping customers accelerate yield learning, improve productivity, and ramp increasingly complex technologies into high Our June quarter results demonstrate the strength of KLA's market position, operating model execution, and drive continued confidence in our performance moving forward. Looking ahead, customer engagement and demand signals continue to strengthen as we are adding capacity to support expected demand. Growth is accelerating in the second half of calendar 2026, and we are well positioned to execute against the expected demand environment across all segments over time. As AI-driven semiconductor complexity increases, KLA's differentiated portfolio, compounding R&D investments, growing installs base, and disciplined execution positions us to capture a larger market opportunity. As we progress towards our 2030 target model, we remain focused on supporting our customers, investing in innovation, scaling our global capabilities, and executing our proven capital allocation strategy. We believe KLA is well-positioned to enable the next era of growth and to create durable shareholder value through customer collaboration, technology leadership, operational excellence, and consistent free cash flow generation. That concludes our prepared remarks. Kevin, please begin the Q&A.

Thank you very much, Brian. Angela, can you please provide the instructions and start the Q&A session? Certainly.

At this time, if you would 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 that you please limit yourself to one question and one follow-up. Our first question today comes from CJ Muse with Cantor Fitzgerald. Your line is now open.

Good afternoon. Thanks for taking the question. I guess first question on gross margins. Hoping to kind of hear how you're thinking about the additional supply you're bringing on, any impact there, And as you think about a greater mix shift to tools over other, coupled with, I imagine at some point, you'll be able to pass on the inflation related to memory and other components. How do you see kind of the trajectory for your gross margins into 27 and 28?

Yeah, CJ, this is Bren. So on gross margin, we're certainly starting to see some benefit from leverage in the overall model. We're still dealing with some headwinds as related to memory pricing. We've been able to secure supply, but as we've seen demand strengthen, we've been having to procure a new memory at higher prices. Over the last week, we thought the impact was somewhere around 100 basis points. It's probably a little bit more than that, and I think that likely continues as we move forward through 2027. We talked about 2026 overall gross margin likely being in the 62% plus or minus. Clearly, if you look at the guidance we've provided and expectations for next quarter, we're going to be above that. So we feel pretty good from a trajectory point of view. From a product point of view, we are, as we talked about, as we introduce new products, it gives us an opportunity to make some changes to our cost structures. We deliver new capability to customers. Well, to reflect the new cost structure, but also pricing. So we think that that incremental operate or incremental gross margin models and move through some of the leverage opportunities, new products.

I guess as a follow up, it looks like service is on track to go about 20% for semis. And just curious how to think about 2027. You know, are there new enough products coming off warranty and or kind of new product and or kind of upgrades where you can sustain kind of double digit growth? We'd love to hear kind of your thoughts around the drivers there.

Well, as we talked about at Investor Day, we have a new long-term target model for service growth of 13% to 15%. This year, we're right now at the bottom of that range. I would expect that to accelerate given the higher shipment levels that we're experiencing this year and into next year. So I would expect we'll be operating in the range, but towards the higher end of the range as we move into next year. As you know, our service business has some predictability to it in terms of its contract stream, 80% of the revenue as a company in terms of visibility moving forward. And certainly our customers in this environment, our utilization, the results matter a lot, so as we can execute our service.

Thank you. Our next question comes from Harlan, sir, with J.P. Morgan. Your line is now open.

Good afternoon. Thanks for taking my question. The team has raised their WFC outlook, I think, four times this year, including today, to now sort of that low $150 billion range, so up kind of mid to high 20% range. I think that this implies your overall business growing sort of in 20% range, and I assume that this implies that your process control business grows closer to 30% versus your prior view of greater than 20%. How should we think about the growth profile? You just talked about services. How should we think about the growth profile of the EPC business this year? And you called out significant growth for next year, but do you still see WFC spending growth next year greater than the WFC growth this year?

Harlan, this is Bren. I'll start. There's a lot there. I would say first on 2026, certainly we've seen some strengthening from our customers as we move through the year. Schedules are holding in terms of some of the new factories that are coming online. If you go back to the beginning of the year and you're looking at Q4 opportunities, you are hedging a little bit as it relates to factory timing and so on. So as a result of that, packaging is also inflected and accelerated. That tends to be a shorter lead time business. So all that contributed to the revised outlook for this year. Given how quickly we did, as we talked about the past, shortages as it relates to some of our longer lead time materials and how that's impacted the first half, certainly in the second half we're seeing that supply come on and we're seeing the second half acceleration, as we talked about, 20 percent over the first half. And I think we're pretty well positioned to support patients into next year. We talked about it. We've seen the 2026 number move up. There, 2027, you know, there's a consensus view out there, I would say, that somewhere in and around the $190 billion range. There are some upside or more bullish views of that. There's not too many bearish views of different levels. And I appreciate that.

And, you know, Jim has previously talked about a broadening in spending, especially in the Foundry and Logic space, right? And just over the past 90 days, we've seen, for example, Intel announced that they're pulling in their 14A production by a year, you know, and your process control share at Intel continues to go up. Samsung just announced Foundry engagements with new customers like Broadcom, for example, for 2nm and 3nm, and then you've got Rapidus and new TerraFab initiatives, right? How much of the improvements that you've seen in your calendar 26 and calendar 27 outlook is reflective of these broadening sort of dynamics within Foundry and Logic?

Yeah, Harlan, it's Rick. Of course, those are factors that are driving us, and also, as Bren mentioned, are the setup for 2027. There's no question, and we said this a while ago, that, you know, the world needs more advanced logic, and so there was a desire by many customers to broaden the other players outside of the leader to supply that, and there's been some success in terms of their ability to bring technology online, but there's such a big There's a big, big demand out there that this was kind of inevitable that you would see a broadening. So that's certainly driving it, and I think it sets up well. I think process control intensity now is understood by the leaders, and not just in advanced logic, but also we're seeing it more broadly in memory. So the broadening has really been happening as we hoped it would, and is part of the reason we feel the setup is so good for next year.

Thank you. Our next question comes from Vivek Aria with Bank of America. Your line is now open.

Thanks for taking my question. For my first one, I'm curious to hear your views on competition in China. You know, recently there has been more noise about more domestic competition, more and more and little than there in process control. But what makes the mode for process And let's say if, you know, theoretically, the Chinese memory companies, right, who spend the bulk of their, you know, process control WFC with local suppliers, I imagine, if let's say their import ban is lifted, you know, does it mean that more of the WFC share will go to local suppliers? So I'm just curious to hear your perspective on how competition from China could evolve as a share of the WFC wallet.

Yeah, thanks, Vivek. I mean, there have been a lot of players across the world, not just in China, who have tried to enter process control for a number of different reasons. I think the unique advantage that KLA has in terms of developing our products is the integration, not just of the technologies for process control, but also the engagement with customers, and especially as it pertains to the leading edge. And a lot of learning that happens at the leading edge then helps define the interactions that we have and also the development that we have across our portfolio. So process control is tricky to get into because it's a very high-mixed, low-volume market. So unlike Litho, frankly, is a much higher kind of similar tool, higher volume, process control, there's a lot of nuance. There's also a lot of work with algorithms and development in terms of being able to help customers determine what's valuable. Add to that the 1,600, 1,700 applications engineers that KLA has worldwide, and it's a pretty good competitive moat that we've established over time. So we have seen people come out the market, but, you know, our job is to continue to innovate, to provide capability, and today we continue to see whenever there's fair competition and we're allowed to compete, we do quite well.

Thank you, Rick. And for my follow-up, I think when you mentioned the possibility of, you know, industry expectation of 27WF in the whatever 190-plus range, so that's close to 30 percent growth. So, I know it's very early, but let's say if I were to ask you to kind of rank order FoundryLogic versus DRAM versus NAND, how would you kind of rank order what would be the areas of, you know, growth above or below that range, and that makes, you know, what would that suggest to us about KLA's ability to, you know, take share next year? Thank you.

Well, as Rick talked about earlier, we're pretty excited about the broadening of investment that's happening at the leading edge in logic. And so that will drive, after a number of years of pretty high level of efficiency and logic investment at the leading edge, that you have multiple players. And I think as this year has moved on and gotten more comfort around the sustainability of additional investment beyond 26 as it moves into 2027. So we're really encouraged by that. We talked a lot about high bandwidth memory and how high bandwidth memory from an intensity point of view is a unique animal for KLA, given some of the dynamics around it, both in terms of more customization in the die, the base die, the integration of each DRAM, and then the ultimate value. Performance specs also a factor. So for all those reasons, we're seeing even across some of our products where we're seeing intensity levels that are rivaling Thank you.

Our next question comes from Krish Sankar with TD Khaled. Your line is now open.

Hi, thanks for taking my question. Now, Rico Brin, one of the large foundry customers last week raised their capex, part of it was due to equipment pricing going up. To the extent you can answer, in this environment with strong demand and capacity constraints, is KLA raising prices either due to value pricing or increasing supply chain costs, especially on existing tools? And so, when are those prices increases going to affect and how do you think about the impact on growth margins? And then add a follow-up.

I think that the question on pricing, you know, a lot of factors go into pricing. One is the volume, the mix of products, and the other services that are available when we deal with customers. But I think in general, you know, the input prices have gone up. Customers recognize that. And so we have had conversations about, you know, different discussions about how KLA will help to capture some of that value so we can continue to make the R&D investments. So we've had those discussions. As Bren pointed out, you know, the gross margin performance is largely in line with what we anticipated, and we continue to see a path forward. And when we bring out new products, that's when new pricing decisions get made. But with existing products, it's a little bit more around other ways to where we can share in some of the increased value, but recognize some of the increased costs.

Chris, I'd also say that the memory headwind we're experiencing today has likely continued through next year. But I would expect you start to see some normalization on the pricing front that moves from a headwind to a tailwind. So we feel pretty good about the pricing model I talked about, and that's inclusive of a combination of the animal to pass along, but also to just the incremental value of our offer. I think as we move forward, we should be able to scale the business consistent with the incremental gross margin target that I provided in the earlier question.

Gotcha. Thanks, Mr. Rick and Ray. And then a quick follow-up. You know, based on your guidance of second half over 20%, it looks like you might grow your revenues in the low 20% this year on a calendar year basis. When I try to, like, square that with what your WFV comment is, which is, like, low $150 billion, it looks like the runway WFV earlier in the year was like $130 billion. You might probably exit at $170 billion plus. When I look at your revenue over the quarter, it seems like your revenue as a percent of WFV is pretty consistent through the year. I'm just wondering why. Is profit control intensities increasing? I would say

slower from a sequential point of view, given some of the lead time challenges we had and how that translated to the constraints around shipments. I think an important message was that as we start to see that accelerating as we move through here the second half of this year, that we feel like we're in a pretty good position to see, to be able to drive sequential growth moving forward and support some of the outlook that we talked about. So I think the construct, as I talked about, is pretty good, and VC business, I would expect it will grow at least a few points, maybe a little more than that, faster than the overall company as it's being diluted by service growth. And I think for 2027, it sets up pretty well. Because of the dynamics of high-performance compute, now that translates into a greater percentage of semiconductor revenue over time, that the next four to five years would be as strong as the last four to five years in terms of KLA's overall market relevance. So as we go over the next five years, we expect that we'll continue to execute and drive some of the strategies we talked about, and we'll see that share of market increase that's consistent with that overall view.

Thank you.

Thank you. Our next question comes from Blaine Curtis with Jefferies. Your line is now open.

Hey, guys, thanks for taking my question. I wanted to ask about, you know, people are throwing out pretty big numbers for what the WFETAM could be in a few years.

I'm not expecting to answer that, but I'm just curious from a supply chain perspective, how long would it take to prep for a $300 billion WFET market, And can you just talk about what space you have within your facility and timeline if you had to add any space for your supply chain? Yeah, it's an interesting question. And one of the things that we've spent a lot of time on over the last few months is meeting with some of our critical suppliers and planning and doing capacity agreements for our needs, we believe, in the 2029 and beyond timeframe. And that gives you a sense of how we have to think about planning to drive the capacity requirements for optical components. So we're actively engaging in those discussions now and working through the economics of that. We usually do whatever we need to from our own capacity point of view in terms of our own facilities and the headcount we need to build our systems. So, or the thing that we have to manage to think about is long lead time, because it can take, you know, 12 to 24 months to put new capacity in place for those types of components.

And to blame, because of the nature of the industry, because of the overlap and the knowledge that suppliers have of each other, if you really did have a number like that, we would see the signals, because others, there are others that have similar kind of lead time. So, we would be responsive to that. We wouldn't be the ones not able to support that. Thanks. And then just talking about visibility, I know you don't give RPO anymore. I'm just kind of curious if there's a way you could talk about it directionally as an improving, or maybe you could talk about your outlook visibility, how far is that extending? Is it changing?

Yeah, sure. Some of the view I talked about earlier is predicated on what's happened with backlog growth, right? Right? And so the order funnel and how that translates. We're going to issue our 10Q here. We've finished the fiscal year at the end of June in another week or so. But we'd expect that the RPO would be, or backlog, would be about $12.5 billion. And we've seen that grow pretty consistently our last couple of quarters and would expect that given the order funnel that we'll see that continue to grow. So part of our view of second half and 2027 is certainly informed by translates into backlog. And helpful.

Thank you.

Thank you. Our next question comes from Timothy Acuri with UBS.

Thanks a lot. Bren, so gross margin is being guided flat on up 10% revenue. I know you went through why that is. And you're basically giving us Q4 guidance as well. December quarter guidance, it's up another 10. So, what's the implied gross margin for December? So, December is up about the same on a quarterly basis as September. So, are we talking about another flat gross margin quarter for December?

We'll see how Mix plays out. I mean, Mix is the biggest factor in our gross margin quarter to quarter. As we talked about it in Investor Day, right, we see that the gross margin is generally going to track 60 to 65 percent towards that, you know, 63 and a half. My view that we articulated in this range, but, you know, it could be a little bit higher, too, so we'll just have to see. Like I said, it depends on the product that actually revenue. We have some big integers in some of our product sites, and that tends to influence our gross margin. But in terms of long-term trajectory, I think it'll be consistent with where I articulated an earlier question.

Yeah, I guess as my follow-up, so, I mean, I guess I'm a little confused as to why you can't raise prices to at least offset, you know, memory prices. I know that you're coming from different places than others are, but even ASML is talking about raising prices on EUV, so I would think you'd be able to at least offset the compute headwind, and it seems like you're struggling to do that. So is there something unique? Is there something like you don't want to anger customers, or is there some reason why you're not able to at least offset that and maybe even get proactive and move margins higher than what was in your model?

Well, as I said earlier, we get price increases as it relates to increases in our cost structure. We deliver new capability to customers that meet their cost of ownership targets, and in that time relative to the pricing and make the adjustments we need to make. And so we'll continue to do that. It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders. So I think we're pretty comfortable with our due rate talk of opportunities that exist here. So I think as we move forward, you'll continue to see.

All right.

Thanks. Thank you. Our next question comes from Joe Quatrocki with Wells Fargo. Your line is now open.

Yeah. Thanks for taking the question. I think last part you talked about maybe Sound Geologic being in the low 60% of semi-PC systems for 26.

Just curious, like, how, what's the updated thought process there, given the increase in WSEL?

Yeah, just last quarter, I think you talked about founding logic being, like, low 60% of semi-PC systems for 2026, and maybe memory, you know, accelerating in the second half. Just kind of curious, just given the guidance that you've provided for the mix and

the 3Q, how that looks, and that changed.

Yeah, I think as we look at this year, I would say we're still more or less in the same ballpark for semi-PC systems to the semiconductor customers to reflect all of our systems business in the December quarter. But I do expect memory to be a bigger percentage in the December quarter and likely to remain there through the first half of the year. So we'll have to, we'll see how that plays out. As I said earlier, a lot of it depends on the timing of just revenue recognition.

And then just wondering if you could talk about, you know, your lead times and how do we think about just the cadence of capacity that's coming online as we move through next year?

The whole company are in about the 12-month range, but on certain products, it can be, you know, closer to 18 to 24 months. All our conversations today with customers are about in that direction around some of the larger. So I would say that if you have a certain product, capacity that comes online, that is we have capacity and the volumes that that ultimately supports, and that just translates into what we can ship at certain quarters. Given the demand from certain customers, we do a lot of moving things around and juggling to meet, you know, changing customer expectations and also to ensure that we don't lose business because we can't deliver. So there's some art to how we manage it, but generally that's how I think about it.

Thank you. We'll go next to Stacy Raskin at Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my questions. For my first one, you talked about sizing your supply for the most bullish scenarios. Can you give us a little more color on what that means? I mean, like, if I look at some of your competitors, like, AMAC suggested that they were doubling their capacity, for example. Like, is that how you guys are thinking about it? And I realize that for you it's not just capacity. It's also, like, component supply and that sort of thing. But any more color you can give us on what bullish scenarios actually means in this context relative to what your competitors are doing?

No, Stacey, what I think, and maybe it was a little unclear. Sorry about that. What I was saying is we would be in a position to support any scenario that the industry could support simply because we would see it coming and be able to respond. What we're doing now in terms of supporting capacity is supporting the outlook, and we're having a lot of conversations with customers about their needs, and there's a huge premium right now on being able to deliver to support the ramps that are going on around the industry. And then Bryn can talk size of that.

Yeah, and what I meant by that was, look, there's a general view of spending into next year and what that would imply. I think there's certainly some bullish cases, and so as we think, so based on that view, what if demand into where do we need to go to work or think about adding, it would be great if I could.

You know, so you're effectively suggesting WC next year somewhere in the range of, like I think somebody already mentioned, like around 190, give or take, and your 2030 model had 215, which isn't that much higher than that. I think it also had a semi-market of 1.4 trillion that we seem likely to hit this year. Is there any thoughts, either qualitative or quantitative, on that 2030 model, like, in the wake of what we've seen over the last, certainly over the last, like, couple quarters of this year? How do we think about that in the context of what we're seeing now in terms of?

Well, yeah, Stacey, that's a very good point. We also couldn't have imagined some of the pricing increases that have driven up the revenue for SEMI this year, for example. So, you know, some of it has been price-driven. What we really were trying to do with 2030 was give a, you know, what would the industry look like if it's growing at a high single-digit for the semi-industry and capital intensity continues to go along at its level and process control strengthens and we gain share? But, you know, we said the caveat to that is we really don't know what it's going to build out. And I think even at Investor Day, we were, you know, since then, things have strengthened inside the industry. But we're trying to give a ballpark range of that. You know, I think more importantly is if you envision that the market's going to be much higher than that, once we normalize for some of this pricing a little bit, then the process control intensity, we feel pretty confident about that. So if you have more capital required, then we would exceed the model that we laid out for 2030. And that's how that would work. But, you know, we're still a long way. I mean, we only had our investor data in March, and here we are in July. So we're in no position to reset anything as it pertains to 2030. I think, Stacey, what's important to take into

consideration, and first of all, it turns out it's bigger than we've proven over time we know how to scale out of business. And so, to Rick's point is that if you think about long-term assumptions of semiconductor revenue, capital intensity rising modestly, in that model we added semiconductor revenue at 11 percent and weight for equipment at 12 percent. There are certainly different views of higher capital intensity, but pricing could be a factor in that. And that, hey, plus or minus 25 basis points from where we are in 2025, that growth would deliver.

And, Stacey, I think we're really good at creating systems that are valuable to our customers for process control and engaging with them. We are not very good at forecasting.

Got it. I think it's an unsolved problem in the industry anyway.

Thank you. We'll take our next question from Melissa Weathers with Deutsche Bank. Your line is now open.

Hi. Thank you for the question. I wanted to ask, maybe go back to that EPC side and the Orbitech thesis that you guys have laid out years ago. It seems like that's playing out nicely, and you saw some upside in that business this quarter. So any update to how you're thinking about the longer-term growth rate of that business? I think at the analyst day, you said up mid to high single digits, if I have that right. So any updated thoughts on how you're thinking about that business?

Yeah, it's pretty exciting what's happening with high-performance compute and how that's translating into opportunities, both for specialty semi, which is in our process tools, but also in the Exorbitech with specialty semi and PCB. And so in multiple PCB businesses, with the transition to substrates and high-density PCBs, it's creating a lot of opportunities for us, and certainly the The value of those boards is much higher in these new devices, much faster. And we'll see this business has been historically more capacity-centric and tied to mobility. That high-performance compute is changing this market, and we'll have to see. It is a new change and something that we're going to have to monitor. But we're pretty excited about our positioning and our ability to differentiate.

Thank you. And maybe along those lines, the advanced packaging business specifically that I think you just took up to $1.1 billion this year, the drivers behind that revision, is that just the TAM is growing faster, or is that market share gains? Is there any color on that? And then is there any incremental, like, what's incremental OPEX for those kinds of tools? Is that less R&D intensive, or how do we think about the investments that you guys are doing there?

I think the main drivers for that is the accelerated share and adoption of some of our systems that were designed for front-end. And so that's, you know, it's been great to see, but it was kind of a continuation of the trend that we saw. But even our folks who were right in the middle of it were surprised by the magnitude of that. And it hasn't taken a ton of R&D because we're, it has taken some. I mean, I'm not saying it's not any, but a lot of it was leveraging the portfolio that we already had, and it was our customers pulling us into that. And if you can see the types of systems or substrates that are being leveraged now, that we were waiting, and we've been waiting for a long time for things like SOIC or hybrid bonding to drive those needs, and now we're seeing, and there's even more coming. So we look at things like data to wafer bonding, binding, then you've got more opportunity. So I think we're really well positioned. We have had to make investments, but we're extremely excited about what we've seen and the growth that it's providing for us.

On the market side, I'd say the market is accelerating. We started the year thinking the market was somewhere, you know, in around 20%. I think now we think the market is kind of a mid to high 30s growth rate. And then, of course, our business within that growing, as we said in the prepared remarks, you know, close to 2x that. So we'll see. It tends to be shorter lead time, so you have to respond quickly. But certainly what's happening on the logic front, both in traditional or in the co-op type packaging, but also in striving the need for more capability in those areas. Thank you.

Thank you. We'll take our next question from Atif Malik with Citi. Your line is now open.

Hi, thank you for taking my questions. Rick, you called out the visibility of investments into 2027. What signs, if any, that it's advanced payments or deposits that you're seeing that are different from prior cycles that is giving you the confidence and sustainability of the cycle?

Well, I think it's much more, you know, our customers sharing with us the demand that they're seeing, and we have the ability to do some verification with other parties because we're involved in conversations with them. Just to give you an example of, you know, what we see for advanced compute in terms of the demand and talking to some of the players who are trying to get that capacity, we know that there's a shortage of those capabilities. It's not hard to see what's happened with memory in terms of demands and what the, you know, statements are in terms of when we think supply will resume, you know, back to equilibrium. It's a ways out. So there are a lot of signs out there that these investments are going to continue at a very high rate, and a lot of the conversation we're having with customers is to be able to support those ramps. So, I have very few concerns about what's going to happen in 27. It's pretty clear that the build-out continues.

Great. And one of your customers, SpaceX, publicly, TerraFab, has talked about improving fab manufacturing efficiencies, cutting down steps, and the cycle time and all that. And I was curious if you guys are engaged on that project.

Well, so we don't talk about any specific customer engagements, but you can imagine that if anybody wants to have, you know, any kind of innovation or driving new capabilities in the semiconductor industry, we're going to be along the list of the stops that they make, but we don't talk about specific engagements.

Thank you.

Thank you. And we have time for one final question. We'll go to Shane Brett with Morgan Stanley. Your line is now open.

Thank you for letting me ask the question. So my first question is, I think there's a general understanding that process control intensity has been a bit unfavorable in 2026, as we're adding quite a bit of N plus 1, N plus 2 nodes, like 3 nanometer for logic. If you think about the DRAM and leading logic node mix in 2027, do you think the process control intensity is favorable, i.e., do you see node mix as a tailwind for KLA to outgrow WFE in 2027?

Well, as I said earlier, I think the construct is pretty good. I mean, part of the first half of the year was just we could have built more, we could have shipped more, and we talked a lot about the reasons for that. The other thing is I'm pretty encouraged by the leading, at the leading end, broad-based investment, but also you have a lot of new node investment, and so that's always good, too. You had less of that in 2026. Finally, I think in DRAM, you'll see you have greenfield fabs, and so I think that the greenfield opportunity and the retooling of those fabs creates a new opportunity as well. One of the things in DRAM, given whether it's HVM or even conventional DRAM, you can imagine where prices are, how that translates into margins, that the value of yield is pretty high. And so I think the economics line up pretty well, opportunities for us in 2027. Finally, packaging will continue to reflect, and I expect that to be pretty strong as well. You will also see some greenfield investment and what flashes in our strongest market. Got it.

And for my follow-up, so I totally understand KLA has been a consistent share gain over the last decade, but some of your larger competitors have talked a bit more about process control traction. Just has there been any change to the competitive environment in process control? Thank you.

No, no change. I mean, if anything, we continue to feel really good about our share position in the critical markets we've been in. We're definitely seeing positive momentum in markets where we've held less share, like E-Beam. We talked about the process control intensity going up in packaging. So, no, we don't see anything to support the idea that we're anything but net share gainers in process control over the foreseeable future.

And we've gained share at a time where a number of our competitors have been able to, so to Rick's earlier point, where we can compete, we generally win. And so even in that case where there's been some share movement, even though overall we've been able to grow our share, if we could have competed in those opportunities, I think it'd be even higher.

You know, we're 6X, our nearest rival. I think oftentimes, in terms of overall share, they don't necessarily get a view of the whole landscape. So when they win some orders, they think they're gain and share. Got it. Thank you very much.

Great. Thank you very much, Shane, and thank you, everybody, for your interest in KLA and for your participation. We look forward to seeing many of you throughout the quarter as we participate in different conferences and meetings. With that, I'll turn the call back over to Angela, the operator, to close it out.

Thank you. This concludes the KLA Corporation June quarter 2026 earnings call and webcast.