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Please stand by, your meeting is about to begin. Good afternoon, my name is Stephanie and I'll be your conference operator today. At this time, I'd like to welcome everyone to the KLA Corporation September Quarter 2026 Earnings Conference Call and Webcast. All participant lines have been placed in 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. Lastly, should you 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 September 2026 quarterly earnings call. Joining me are our CEO, Rick Wallace, and our CFO, Bren Higgins. We will discuss today's results as well as our outlook, which we released after the market closed, and it 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 always refer to calendar years. The earnings material contains a detailed reconciliation of GAAP to non-GAAP results. Our comments today are subject to risks and uncertainties reflected in the disclosure of the risk factors in our SEC filings. Any forward-looking statements, including those we make on the call today, are also subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. 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 Brent with financial highlights and our outlook. I'll pass the call now to Rick.

Rick? Thanks, Kevin. Haley's September quarter beat the midpoint of our guidance ranges across all key metrics. Revenue was another record at $4.14 billion. This, coupled with our December quarter revenue guidance of approximately $4.7 billion, demonstrates the growth acceleration we planned for the second half of 2026.

KLA's performance in the quarter was supported by continued strength in leading edge foundry logic related to AI infrastructure investments and increasing process control intensity across leading edge devices and advanced packaging.

Other highlights of the quarter include KLA delivering operating margins above 46% for the first time ever. Gross margin was 62.7% and free cash flow was $1.34 billion. Over the course of calendar 2026, the AI demand environment has continued to strengthen as reflected in our performance. Additionally, our strong customer engagement has provided visibility into a more favorable outlook for waiver equipment investment for calendar 2026 and 2027. We see this reflected in our growing backlog and sales funnel forecast.

We expect momentum across our business to continue into the December quarter

and we're positioned to deliver significant growth in calendar 2027. We've been proactively working with our strategic supply chain partners over the past year to increase their capacity in order to keep up with our demand. Advanced packaging remains increasingly critical to AI infrastructure expansion and advanced packaging roadmaps continue to incorporate more sophisticated wafer front-end processes which drive additional process control requirements KLA's leading process control portfolio enables the company to address these requirements across a growing range of applications. For calendar 2026, advanced packaging process control systems revenue remains on track to hit approximately $1.1 billion or more than 70% year-over-year growth, nearly twice the growth rate of the advanced packaging market. The growing complexity of KLA's installed base and lengthening tool life cycles continues to increase demand for services. KLA's services revenue was $850 million in the quarter, up 14% year over year, supported by a growing installed base and continued customer focus on tool performance, productivity, and availability in this tight system utilization environment. Finally, KLA's process, PCB, and component inspection businesses are also benefiting Thank you for joining us today. Semiconductors continue to play an increasingly important role across global industries, with growth driven by investment in AI infrastructure and expanding demand across a broader range of applications and end markets. Together, these trends are supporting stronger, more durable, and more diversified long-term growth for the industry. Additionally, the growing complexity of AI-enabled semiconductors is increasing process control intensity throughout the manufacturing flow, reinforcing KLA's long-term growth opportunity. KLA's differentiated portfolio is uniquely positioned to address these requirements, while sustained AI data center investment and broader adoption of advanced packaging architectures continue to expand the company's addressable market. As we look ahead, we remain focused on supporting customer roadmaps, investing in innovation, and scaling our global capabilities to meet expected demand growth through calendar 2027. As we progress toward our 2030 target model, we remain committed to disciplined execution, technology leadership, and our proven capital allocation strategy, which will allow us to create durable shareholder value. With that, I'll turn the call over to Bren to discuss the quarter's financial highlights. Thank you, Rick. KLA delivered strong sequential and year-over-year growth in the September quarter. For the first time in our company history, KLA delivered operating margins over 46%. These results reflect our market leadership and discipline execution, supported by our global team's dedication and focus on customer success. Revenue of $4.14 billion was above the midpoint of guidance and rose 13% sequentially and 29% year-over-year. Non-GAAP diluted EPS was $1.22 and GAAP diluted EPS was $1.18, each above the midpoint of the respective guidance ranges. Gross margin was 62.7%, slightly above the midpoint of the guidance range. Government expenses were $688 million, including $395 million in R&D and 293 million in SG&A. Operating margin rose 240 basis points sequentially to 46.1%. Net income was $1.60 billion. Gap net income was $1.55 billion. Cash flow from operations was $1.53 billion. Free cash flow was $1.34 billion. The company had $1.311 billion diluted weighted average shares outstanding for the quarter. A breakdown of revenue by reportable segments and markets, major products and regions can be found within the shareholder letter and slides. Moving to the balance sheet, KLA ended the quarter with $4.7 billion in total cash, cash equivalents and marketable securities and $5.95 billion of debt. The company maintains a flexible and attractive bond maturity profile supported by investment grade ratings from all three major rating agencies. The industry outlook continues to strengthen with visibility improving as customers increase long-term investment plans. Despite these fast space limitations, customers have been very resourceful and are accelerating delivery expectations across all segments. We are therefore raising our expectation for the wafer equipment market, including advanced packaging, to approximately the mid $150 billion range in calendar 2026. Daily backlog continues to grow, and our sales funnel visibility is unprecedented, supported by new fab investments by a broad base of customers. We continue to plan for significant growth in calendar 2027. While we'll have more to say about market and customer segment expectations for next year and our earnings call in late January, we currently expect the wafer equipment market to exceed $200 billion in calendar 2027. Customer engagement remains robust with numerous new fab projects and greenfield facilities scheduled to come online in the quarters ahead. The primary area of focus for our customers is on delivery urgency aligned with new project plans. Against this backdrop, KLA's business momentum and critical role in leading-edge process control positions us to deliver accelerating growth for the remainder of calendar 26 and continuing into 2027. Our expectations of revenue growth acceleration in the second half of 26 are playing out as more capacity comes online in our long lead time supply chain areas. This is resulting in growth in the second half of calendar year 26 over the first half of approximately 25% and positions the company for continued sequential growth into calendar 2027. Daily December quarter guidance is for revenue of $4.7 billion plus or minus $200 billion Boundary logic revenue for semiconductor customers is forecasted to be approximately 60%, and memory is expected to be about 40% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM is expected to account for approximately 84%, with NAND representing the remaining 16%. As a reminder, these business mix approximations pertain solely to our semiconductor customers and do not fully reflect our total semiconductor process control systems revenue. Gross margin for the December quarter is forecasted to be 62.5% plus or minus one percentage point. While the company is demonstrating expected operating leverage across the business as it grows, This is being offset by persistently high memory costs for our system image processing requirements as we have discussed in prior quarters. We are actively engaged across the portfolio to optimize memory efficiency in our systems, along with other product cost reduction initiatives. These efforts, coupled with driving our usual returns-based value sharing with our customers, should offset this headwind over time. Operating expenses are forecasted to be approximately $710 million in the December quarter. We will continue to prioritize next-generation product development, scaling our business execution and company infrastructure investments to support expected revenue growth over the next several years. And we anticipate these expenses to grow sequentially through 2027, but at a much slower pace than revenue growth and consistent with our business model for operating margin leverage. As a reminder, 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 expense for the December quarter, and we expect it to remain at approximately this quarterly level. Planning tax rate is 14.5%. Our tax rate will vary quarter to quarter due to the geographic distribution of profit and various discrete items. In the December quarter, non-GAAP diluted EPS is expected to be $1.44 plus or minus 11 cents, and GAAP diluted EPS is expected to be $1.41 plus or minus 11 cents. EPS guidance is based on a fully diluted share count of approximately 1.306 billion shares. In conclusion, process control, and KLA in particular, remain critical to the AI ecosystem build-out and benefits from numerous ongoing relevance inflections, including increases in leading-edge designs across Foundry and Logic, device size and value, rising complexity and performance requirements, and the growing importance of advanced packaging. JLA is experiencing strengthening momentum and a broader set of growth drivers across the semiconductor ecosystem. The rate and pace of our backlog growth is a key signal of our accelerating momentum and increased confidence in our visibility leading into calendar 2027. Our September quarter results demonstrate the strength of KLA's market position and operating model execution and support continued confidence in our performance moving forward. These recent results also illustrate the strength of KLA's market-leading portfolio, disciplined operating model execution, and continued confidence in improving our performance moving forward. Looking ahead, we remain focused on supporting customer roadmaps, investing in innovation, and scaling our global capabilities to meet expected demand growth throughout calendar 27 and beyond. As we progress towards our 2030 target model, we remain committed to disciplined execution, technology leadership, our proven capital allocation strategy, and creating durable shareholder value. That concludes my prepared remarks. Kevin, please begin the Q&A.

Thank you.

Operator, can you please give the instructions? Sorry, can you just give the instructions and we'll get started? Thank you.

Thank you, Kevin. 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 Jim Schneider with Goldman Sachs. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my question. Good to see the accelerated growth in the back half. You know, relative to calendar 2027 in your view of $200 billion in WFE, you obviously have some good things going for you with advanced packaging growth and so on. So can you maybe kind of articulate how you're thinking about the way calendar 2027 shapes up and your level of confidence and your ability to outgrow that 30% growth? and many more. Thank you.

Thank you for joining us. Our confidence in the December quarter, but also our views into 27. The setup for 27 around the leading edge, both in terms of the breadth of investment, the leading edge, new node investment. We think that sets up very well for the company. Greenfield investment in DRAM. The HBM dynamics and how that's affecting process control intensity. We're also seeing uplifts in process control intensity and conventional memory. Advanced Packaging has been a nice growth driver. I don't see any reason why, as we look at next year, that that part of our business wouldn't continue to grow faster than the market. So we feel overall that the setup is very leading-edge-centric. Packaging is augmenting the growth, and we think we're well-positioned, and our supply should be there to be able to enable us to meet the demand. Demand is strong. I would say that we're – I'm still behind in supply, but I think that the trajectory is good, and we feel pretty confident about the guidance we've given.

Thank you. We'll take our next question. Okay.

Sorry, just one quick follow-up. As you think about the way the shape of 2027 starts to materialize, anything to call out in terms of the back half of 2026 was certainly much stronger than the first half. Do you think it's going to be more ratable through 2027, or do you see it, again, maybe being a little more back-caff loaded? Thank you.

Right now I would say for the next several quarters, given the backlog growth and the visibility in the funnel, that we'll see sequential growth for the next several quarters. Sort of implies second half stronger. I think it's more linear. It won't have the same, I don't think, as of now, the same significant uptick in half-to-half growth. It looks a little more linear to us, but we would expect sequential growth moving forward.

Thank you.

Thank you. We'll take our next question from Harlan Sir with JP Morgan. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my question. On the gross margin front, I know the team had some cost headwinds this year, memory pricing headwinds, maybe GPU, CPU pricing headwinds as well. Moving into next year, I know the team has the benefit of new platforms which carry higher pricing. Obviously, you're going to be driving higher volumes. Maybe it's got other Value Pricing Initiatives taking place. Can we expect the team to drive back into that sort of 63% plus range on a strong WFC outlook in 2027?

Yeah, Harlan, it's a good question. As you said, there's some moving parts in it. When you look at the target range, right, our target range that we outlined back in March Investor Day was 63% to 64%. Certainly, some of the cost inputs have been challenging. We're doing a lot of work inside the company, both in terms of broader input costs, but also memory. I'll call memory optimization work in terms of our use of memory in our systems. There'll be some mixed dynamics looking forward, right? We do have more advanced packaging growth. We have growth in our non-semi-PC businesses. So that tends to be a bit of a headwind to the overall margin, although a contributor to both Thank you for joining us. Thank you for joining us. I appreciate that. And then on the non-AI, kind of more legacy node segments, auto, industrial, IoT, obviously cyclical dynamics are strong. Supply is strong.

Thank you. Yeah, I would say around power, I mean, power is certainly something that is an area of focus in the industry and

There was obviously a period of time where there was some overinvestment there, but I'm starting to see some indications of some recovery in that part of the market. Obviously, what's driving the business in a more significant way is everything related to high-performance compute. But when I look at the customers that are serving the more legacy-centric markets, I do think that I'm seeing some improvement. So I think year to year there's some growth. I don't think it'll be at the level of what we expect from the leading edge. and you'll have activities in China, which will grow, but I don't think it'll grow at a much slower rate. And so I think when you look at the overall legacy, we'd expect to see some growth there. But the business is really being driven by what's happening at the leading edge. But I think that there's opportunities for us to augment growth moving forward from some more business in that part of the market. Process control intensity tends to be lower in legacy nodes. If it's an established node, it's fairly mature unless our customers are changing designs or design rules or have new reliability requirements that could drive inflections and intensity. But the intensity levels in legacy are lower than what they are at the leading edge.

Thank you, Brian.

Thank you. We will take our next question from CJ Muse with Cantor Fitzgerald. Please go ahead. Your line is open.

Thank you for taking the question. I guess a follow-up, Brian, on the gross margin side. If we isolate just to process control, you were north of 65% in June of 25. And obviously, as you've talked about, major headwinds from DRAM in particular. But curious, as those contracts continue, Thank you for joining us.

On a consistent mix, I could see a trend in there as we move into the second half of 27. We start to do deals around new products beyond the existing business that we have. It's very difficult to go increase prices when you have a deal in place on existing business and existing backlog. So I think as we move forward, I don't see any reason why, assuming mix is consistent, that we won't start to see some improvement in the process control parts of the business, apples to apples. And also, CJ, Brent mentioned in the last answer, but I'm not sure you heard it, was that there is work going on to utilize less memory in the systems, engineering work, which takes some time to do it. But, you know, when we designed these systems, nobody really imagined the kind of increase in memory costs. I think a common response to that is to make the systems more efficient around using memory.

Therefore, that will drive that percent content down over time. It takes a while for those to get that in.

Very helpful. I guess as a follow-up, can you kind of talk about what you've seen in the last kind of three to six months from a lead time perspective and how that informs kind of your outlook into 2028 and how you're thinking about hiring and what kind of work specifically on the supply chain to get ready for this multi-year growth cycle? Thank you.

Yeah, CJ.

The conversations we've had with customers the last few months have been very consistent in that there's a huge request that we prioritize their projects. And they're laying out multiple-year investment cycles with an expectation that we'll support them through those ramps. So when we look out at the 2030 model that we laid out before, obviously the Assumptions in that model are going to be exceeded before 2030. So there is a significant amount of investment that we need to do pretty much across the board with talent, but also with facilities and our investment in supply chain. And so Bren can share some of his perspective on that. On lead times, I would say lead times, and they vary by product, but we're averaging right around 12 months or so, and I would say that on the margin they're extending. Certain products, it can be even further out than that. For example, Gen 4 and Gen 5 product lines will have longer lead times. So it does vary. But I think we're in a pretty good position, as Rick said, to support it. I mean, we're making investments across the board. We'll add headcount both in manufacturing and service in the volume-centric parts of the business and applications and engineering over the course of the next 12 months. We're investing in every factory we have. and so there are expansion plans not only near-term requirements and doing things quickly but also supporting what we believe will be a multi-year investment cycle here so we're encouraged by that in supply chain particularly in those areas of long-term or long lead time items particularly in the optics area we are working with are key suppliers to make the investment show up in different forms, but also investing to support what we expect to be a very strong outlook over the next several years. So there's a lot of activity going on. Obviously, that flows through our numbers, activity that's supporting future revenue streams. But we think that, first of all, contemplating the model and the guidance we've given, but certainly a lot of focus in those areas.

Thank you. Thank you. And we'll take our next question from Timothy Arcuri with UBS. Please go ahead. Your line is open.

Thanks a lot. Bren, you did a really nice job this year only losing like 20 basis points worth of WFE share despite what was a pretty bad mix, actually. It sounds like you think WFE is going to grow like low to mid-30s next year. And your lead times are 12 plus months, so you know exactly what you're going to ship next year. So are you going to grow more than that? Will you grow more than a little bit 30 so you'll gain share next year, gain a good AP share?

Yeah, Tim, on 26, I think the second half momentum highlights it. Thank you for joining us. and many more. Thank you very much. and many more.

Your DRAM shares like 6% of WFE shares, so that's like $10 billion of DRAM WFE right there. Is there something unique going on? I know there's some big new fabs that are starting to get equipped. Is it as simple as that, or is maybe your inspection intensity going up in DRAM? I don't think I've ever seen you grow DRAM systems that much, so can you speak to that? Thanks.

Yeah, intensity is definitely going up. I mean, there's no question that we started seeing this a while ago, and I think it took a little while for our customers to fully understand and appreciate the challenges of making these advanced devices. And given their supply shortages, the incremental value of yield If you think back to how memory worked years ago, it's a pretty different world where anything they could squeeze out in terms of yield, but also the performance expectations are much higher as these go into these mostly commercial operations. It's intensity improving, and we see that continuing as we go forward. I think the Greenfield opportunity is also driving a retooling of fabs and retooling in a way where to Rick's point, our customers and many more. All these things are driving opportunities in this part of the market. In some products, we see intensity levels in DRAM that are similar to leading edge logic. So the market is definitely shifting there, and I think the new fabs is an accelerant to our views of growth. If you look at the second, in 2027, we'd expect growth. overall memory to be about 60% of the business and in an environment where, to Rick's point, we feel pretty confident about our ability to perform pretty well relative to the overall market. So it's definitely changing in terms of the way you used to think about the business historically, at least in terms of the VRAM impact.

Okay, Ben. Thank you.

Thank you. We'll take our next question from Krish Sankar with TD Callan. Please go ahead. Your line is open.

Yeah, hi. Thank you for taking my question. I recall I called up on the last question on DRAM. You know, you said you're going to outperform WFP next year. The two big drivers this year was DRAM and Leading Edge Foundry. They're going to be the same next year. I understand. So is it mainly because Greenfield and DRAM is coming in and Leading Edge Foundry logic is going to 2 nanometer? Are those the two key... KLA specific drivers for outperformance next year besides advanced packaging, and then a follow-up.

So, Chris, let me clarify. You're saying if the drivers are the same, why would it be different? Is that your question?

Yeah, I'm just wondering, is the midship going from DRAM from brown feed to green feed and logic going from three to two?

Okay. So I think, yes, those are drivers, but the other thing is, We just weren't set up in the first half to be able to support. Assumptions, if you go back 12 months, were not for the kind of growth rate we saw. In fact, we'd even talked about we thought the growth was going to be happening in 27, but 26 was going to be pretty flat. So it took a little while to get things going in 26, which is why you're seeing our accelerated growth now. The demand has been there. and the demand will continue as the technology nodes continue. And as we said, packaging is growing and it'll outgrow the market next year. So I think it was not a demand question for us as much as in the first half of 26, a supply question. No, I think you covered it, Rick. The new facilities will, I think, create an opportunity for us that will drive some incremental as customers are setting up a new facility in a market environment that is both challenging from a complexity point of view, but also where yield is critical.

Got it. Super helpful. A little bit of my follow-up, you know, I understand lead times are extending, but in general, like, you know, besides ASML, KLS was one of those unique positions that you always had long lead times. I'm just kind of curious, you know, one of the views from some folks in the industry is that $300 billion could be the peak WFE a few years out. I'm just wondering, from what you are seeing, given the fact that, you know, you have a better disability than us, Kind of like, how high do you think this WSE can go? You know, obviously there's like wine cars like Terraflat, but obviously, you know, it's specific to how good the yield of your customers are. Just, I'm just curious, from your vantage point, what do you see the WSE potential to get to?

Well, I'm not going to guide a new number for 2030. Look, at Investor Day, we talked about Thank you for joining us. As we think about these growth scenarios, certainly given the lead times on some of our products and the parts that go into them, we have to contemplate those in terms of preparing our supply chain for those outcomes. We are having deep conversations with some of our key suppliers about our needs in 2029 and 2030 in that timeframe. We're trying to position the company to make sure that we can continue to drive the company consistent with the way we laid it out and support those higher-end scenarios that are being discussed in the industry.

Thank you. We'll take our next question from Stacy Raskon with Bernstein Research. Hi, guys.

Thanks for taking my questions. So the first one, like, to go back to that 2030 model. So, I mean, you're basically there on WC next year. You're there at the high end or maybe a little above on the operating margin target. But what stops you in that WC environment from getting to the revenue that you talked about in 2030 next year? At least on the equipment side. I understand maybe services and some of the other stuff takes a little more time to ramp up. But is it just supply? Is it like the mix of demand? Like, why shouldn't I be looking at a 2030 model more, you know, into the 27 timeframe, given where we're running?

Well, so there were assumptions underneath it. I mean, first, there was a growth rate assumption around service, which, to your point, we won't be there. That was based on an aggregate install-based growth that would contribute to that. You also have the non-Semi-PC part of the business and the expected growth rate there. Within Semi-PC, underneath the number was an expectation of share growth over the next few years of a few points. And then overall share of market would slowly tick up to from 2025, which was about 7.5% of overall weight for equipment, to closer to 9%. So we're not there yet. But in terms of how the financial model works underneath it, I don't see any reason why the financial model would not perform consistent with the way we laid it out. is that growth is more demand from the same customers for a lot of the same products. So I think we feel pretty good about the way the financial model will perform. Obviously, there are things like share counts and other things that go into an EPS assessment, but at least from a top-line point of view, I think it'll be more or less consistent with the way that I laid it out. I think there were some assumptions that were put in there that we're going to drive to over the next few years that were not there yet. But in terms of the overall market, and the current performance, I think that flows through.

Got it. Thanks. My follow-up, maybe to dig into that financial model. So you've talked about 40% to 50% incremental operating margin. I think it's all that in the shareholder lender as well. But, again, you're already running even close to the height of that range. So to get operating leverage from here sort of implies – that the incremental operating margin needs to be above where you're running today. So, I mean, into the high end of that or even higher. Is there any reason I shouldn't think about that incremental operating margin range to be structurally higher given where things are running right now?

It depends a lot on year-to-year growth rates, right? So if you look at it in a more normalized growth rate environment, you know, we'll perform at the midpoint or so of the range. If you look at over the last year with revenue growth at 25%, and you take the guidance we gave for Q4, that puts you slightly above the top end of the range. And if you think about 2030, given expectations for growth in 2030, I would expect we'll be beyond that. So it was more of a marker to give some sense to, Our shareholders and investors about how to think about how we're going to scale the company, what kind of leverage will drive through the model. But if we're looking at growth rates for the whole company that are closer to 20%, then I would expect we'll perform more in line with the top end of the model or better. But that's just long-term how we think about it, how we make investment decisions, how we size it. And then if the industry turns out to be stronger, then that drives upside.

Got it. That's helpful, guys. Thank you.

Thank you. We'll take our next question from Joe Quattrochi with Wells Fargo. Please go ahead. Your line is open.

Yeah, thanks for taking the question. I was curious, your CapEx, I think, this quarter was the highest I've ever seen it. I wonder if you could just kind of give us some color on what was driving that. Was there just also related to supply chain dynamics or something else?

Well, in the quarter, we made a significant land purchase in India to build a new campus there, supporting our long-term growth. So that was a large portion of CapEx. Now, I do expect our CapEx, I think as I laid out it yesterday, I talked about 2% to 3% of revenue going forward, but of course revenue is growing. But on an absolute dollar basis, I would expect our CapEx to trend up over the next few years, somewhere between $600 and $800. Thank you, Ben.

The services business, I think you talked about operating at the high end of your long-term growth algo this year. Is there any reason that that wouldn't be the case in 2027? How do you think about the growth in 2027 for services?

Yeah, no reason to think that that wouldn't be the case. I mean, given the growth in the industry and what we're adding to the install base, that our systems are running at very high utilization. The value of yield in this environment, Thank you. We'll take our next question from Melissa Weathers with Deutsche Bank. Please go ahead. Hi, thank you. I wanted to go back to the supply chain side of things.

as you said you've been working on this for over a year so and maybe some of your competitors are just now starting to see some more acute shortages so can you just like what ending would you say we're in in terms of you guys expanding your supply do you see risk of further like tightening on the supply chain or do you think we're kind of through the worst of it just where do you think we are in that process?

Yeah, talk about this at Investor Day. I think when you look at our supply, given the nature of some of our components, that what drives our ability to ship is typically around optical components. And those have the longest lead time. Now, we run into all kinds of small issues, but once we set the volumes, get set by those Those high-end components. I think the supply chain team does an excellent job here managing all those little issues as they happen between the time that we get things scheduled and we ship tools. In an environment of very strong growth, I think everybody runs into challenges of working through hedges and buffer stock. Thank you for joining us. and many more.

Your December quarter outlook, is that supply constrained at all? Not that I'm complaining, but could that have been higher if you had more supply? And then same thing with the over $200 billion WC outlook, is that you have on the site to that supply at this moment, or I guess? How unconstrained is the number?

Yeah, Melissa, I tend to live in reality here. I don't get wrapped up in the what-ifs. It's what can we ship, and how's our supply chain positioned for that, and that then translates into how we provide the guidance. As I said earlier, move rates on key components are increasing month by month, and so that informs not only what we expected to see in December, I would say over the course of this whole year, I could absolutely have shipped more. My demand was ahead of my supply, but I do think we're in a position where moving forward, we're seeing incremental supply come online and that is informing the visibility and guidance that we've given. Yeah, I think, Melissa, one thing to add, this is Rick, I think that for some customers, they can say that they want deliveries, and then what they find is they've got delays themselves in terms of facilities. So it's not just the equipment, it's the readiness of the fabs. and so I think if you look out over time yeah could you ship yeah maybe but it doesn't mean they could utilize it right away so that's why I think these you know when people talk about can you be there to support the industry it's really you need all the equipment suppliers to be able to do it you need the facilities you need to build so it's longer than just can the equipment guys ship so there's a couple customers right now that have asked for some deliveries and then they're on hold because they're waiting for their facilities. Does that make sense?

Yeah, it does. Thank you, Beth.

Thank you. We'll take our next question from Chris Cossett with Wolf Research. Please go ahead.

Yes, thank you. Good evening. I just want to ask a follow-on to the capacity question as well, and maybe in two parts. And one is, you know, as you look into business and let's say, let's look into 28, do you think that the bottlenecks are more on the KLA side or more in your supply chain? And then for 28, you know, I guess most of us are expecting, you know, a pretty significant acceleration in 28. are continuing to grow from 28 as customers have more clean room space. Are there any impediments to that that you see, given we've got some preparation time here?

Yeah, I think, again, if you go and look at the history of a lot of these build-outs, People can have these plans, but then they get into delays when they're building clean rooms. There can be delays in having enough power for those clean rooms. I mean, if you look across the supply chain over the last several years, there have been plans that have been delayed over time. And equipment can be part of it, but it's only part of it. So our customers are sending very clear messages that they want, you know, to bring on these additional fabs and to do these build-outs. We have to kind of move in concert, which is why you often find like we're part of a group that will be supplier days for all these customers, and they'll be talking about those expansion plans. So they can have, right now it's theoretical how big it's going to be. But as you get closer to it, you know, we'll see it build out. So it's not as simple as we're going to be late, because we're working very closely with those customers as they're building. As I mentioned, there's one customer right now that's desperate for more capacity, and they can't take equipment because their clean room is delayed. And that's because they don't have, so the bottleneck moves around. and many more. It's the power for the data center. They have it. So that's why I think, yes, this industry is going to keep growing. In some ways, it's going to prolong the rate of growth because it's harder to add on as much capacity as some people are envisioning, for example, for 2028. But it does, I think, mean we're going to have a longer cycle in terms of the growth. So our motto is we're not going to be the constraints. We've said we're not going to be the bottleneck. We might have periods where we're a little behind. As Bren said, we'd like to ship. But we're doing everything we can, working with our customers, with our suppliers, so that KLA is not the bottleneck. It doesn't mean there won't be bottlenecks. It's just our goal is not to be the bottlenecks. And we can do anything inside the company generally within the time fence that gets established within our long lead time components. What I mean by that is that we can hire the people we need. We can drive the facility utilization. Obviously, CapEx decisions around new facilities is a long-term process, which is why we're making the investments. But you can also run extra shifts and so on to ensure that we're driving facility utilization. So we are never in a situation where were the bottleneck, to Rick's earlier point. So I feel very good about how KLA is positioned, and we can do anything inside the company that within the time fence that gets established by our long lead time components.

Got it.

That's an helpful clarification. Thank you.

As my follow-up, I'll ask about China. And it looked like it was up significantly in the quarter. I know that revenue tends to be lumpy. Can you talk about what your expectations are for China, what's embedded in the Q4 guidance, and what your thoughts are for the China business as you head into next year?

Yeah, it'll come down in Q4. As I said, actually, I think I've been saying this since March, is I thought that China as a percent of the total would be in the high 20th percentile. So we'll call it somewhere between 27% and 29%. And I still believe that that therefore implies that the fourth quarter is in that similar range, given what we've done in the previous three quarters. So it did pop up a little bit in September, but China is growing at a much slower rate than the overall business. and so it's coming down as a percent and I think in 2027 that will continue. I expect China will likely grow a little bit but not at the same rate as the growth in wafer equipment outside of China. So we're probably operating somewhere I would say in the low 20th percentile in 2027. Now, within our numbers, there's also our non-semi-PC that also has business in China. There is more PCB-type investment that happens in China, component inspection in China. So it probably skews the numbers a bit up a little bit, but it's a small percentage of the overall, so not much. So I think the numbers I provided give you, I think, enough directional clarity about where the business is today and where it's going.

Okay, thank you.

Arthur, can you take the next question, please?

Yes, my apologies. We will go next to Shane Bretman, Morgan Stanley. Your line is open.

The first question is on advanced packaging. At your investor day, you mentioned that Kronos is the workhorse of packaging. We have the next three systems already ready. Just are your customers requiring higher sensitivity tools? And if so, can you talk about the competitive environment at these higher sensitivity levels? Thank you.

Well, in advanced packaging, it's been flecking because of the move to more front-end-like processes. Most of it, to your point, has been in the macro products. and we think the roadmap for those products were well positioned there. You are seeing more hybrid bonding in logic devices, which is driving the need for greater levels of sensitivity. We also talked about that yesterday. So you start to move from micron level sensitivity down to the 100 nanometer type sensitivity. It does drive the need for more advanced systems. So when we talk about our overall packaging exposure, the mix of systems is starting to trend more towards higher-end systems. So the macro products are still, to use your words, the workhorse, but we're seeing more laser scanning and even in some cases some Gen 4 deployment in systems. for packaging requirements. So we think this part of the market continues to be an opportunity for KLA. We've been able to leverage a lot of the R&D that we've done across the more advanced platforms, and so we think we're very well positioned with proven products that can meet the higher-end requirements, and our customers understand that capability well. So we think we're pretty well positioned in terms of the growth opportunities in that part of the market.

Got it. Thank you. And my follow-up's on Logic. I know you assess node-to-node share gain after certain waiver start volumes are installed. But internally, is there a preliminary expectation on your share gains from 2 nanometer to 1.4 nanometer? Are there any part of your product portfolio where you think the financial market would be surprised on just the magnitude of share gains? Thank you.

Yeah, we think the trend is in the right direction. I mean, one thing about the next generation nodes is they're starting to tune those nodes for high-performance compute requirements. And those require some of the more advanced capabilities and more sampling steps because of the value of the die. So with high-performance compute, you have large die. They're very valuable. Defect density is a challenge. You also have a very rich design environment. All those are good contributing factors. I don't and many more. Got it. Thank you very much.

And we will take our final question from Tim Schulz-Melander with Rothschild and Company. Redburn, please go ahead.

Yeah, hi there. Thanks for taking my questions, Ed. One for Rick and one for Bren. Maybe the first one, just comparing 27 to 2026. When you look at the capex that was spent on it or is being spent on established nodes this year as a percent of the total market, and you look forward to 2027, could you just maybe describe how that ratio changes? And then I had to follow up.

Well, you see more investment in two nanometer. I mean, look at the, I think, two nanometer and three nanometer investments will be the focus in logic. You'll see more there. You'll also see some investment in the next generation nodes, so 1.4. So it's different. You didn't have any of that more advanced investment, and it was more three nanometer centric in 26. So I think it sets up, I think, good for us, constructively in terms of just, you know, more two nanometer and, you know, more leading edge investment at 1.4. Very clear.

And maybe just, thank you. And then maybe one on memory in 2027. You've discussed your engineering strategy about how you're going to address that memory issue. Thank you.

Well, certainly our focus early on and through this year has been mostly around securing supply. Look, when things started to ramp in early 26, we felt pretty good about ensuring we had the supply, which was no easy feat generally because of the constraints in the overall industry. It's very helpful. Thank you.

This does conclude our question and answer session. I'd like to turn the program back over to Kevin Kessel for any closing remarks.

Yeah, thank you. Thank you, everyone, again, for your interest in KLA. We know it's a very busy earnings day, busy earnings week, so we appreciate it. If we can get your questions, hopefully we can connect here after the call in our callbacks. And with that, I'll turn it back to the operator to formally close off the call.

Thank you. This includes the KLA Corporation September quarter 2026 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.