Toshiya Hari: Hi. Good afternoon and thank you so much. Gary, I had a question on ’24 WFE, you gave really good color by application in your prepared remarks, leading-edge foundry and logic and NAND up. DRAM, it sounded like you’re thinking flattish and ICAPS maybe down a little bit. Curious if you can, perhaps quantify how you’re thinking about these different applications and perhaps for the overall WFE market into next year. And more importantly, you highlighted how you guys have outperformed the market for five consecutive years. Is it fair to assume that ’24 could be the sixth consecutive year given what you see in your backlog today? Thank you.
Gary Dickerson: Hi, Toshiya. Yeah. I would say that relative to Applied’s performance, I’m very optimistic. In leading foundry logic, we’re really well-positioned for the major inflections that our customers were ramping Gate-All-Around and Backside Power Delivery. Gate-All-Around, we’ll see some revenue in ’24, but that’s going to be ramping more significantly in the future years. And Backside Power, we’ll see some revenue also in ’24, but also a significant ramp in the coming years. And each one of those inflections is a billion dollar incremental opportunity for Applied and we can capture more. We’re on track to capture more than 50% of the overall spend for those major inflections. So really good position in foundry logic for Applied overall, as we said in the prepared remarks.
We think that business will be healthy in ’24. DRAM is another case where we’re really well positioned for the major inflections. We’ve gained 10 points of overall DRAM share in the last ten years. And again, going forward, we feel like we’re well positioned. We have design wins for those future inflections in DRAM, and we see opportunities to continue to drive share there. In packaging, that business is a billion dollars for us today and we’re in very good position for all of the different architecture inflections in packaging. And there again, we have an opportunity to gain over 50% share in packaging inflections as that goes forward. So all of those areas that we talked about, the leading edge foundry logic, DRAM, packaging, all of those areas are very strong for us.
And as we said, ICAPS will be weaker in ’24, but those opportunities, those markets will offset some of the weakness in ICAPS. And Brice, I don’t know if you want to add anything on the overall market.
Brice Hill: No. I think. I think that’s good. We just — it’s better for us to give you insights into each of the end markets and tell you what we see and that’s the best way we can communicate what we see going forward.
Toshiya Hari: Very helpful. Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Krish Shankar from TD Cowen. Your question please.
Steven Chin: Hi. Thanks for taking my question. This is Steven calling on behalf of Krish. I guess a question I have is on gross margins. Just given the comments about normalization of China revenues in the coming quarters and also sort of the ICAPS dynamics, what are sort of the slightly longer term or medium term implications to gross margins if the mix of China goes down? Thank you.
Brice Hill: Hi, Krish — sorry. Hi. Thanks for the question. Yeah. Thank you. So for gross margins, first, I would say to investors, we’re still committed to what we had modeled, although we delayed it for a year. So we’re modeling 48% to 48.5%. That’s what we’re committed as an interim goal to raising our margins. As you highlighted, in Q4, we had 47.3%. It was buoyed by the 44% mix of China. If you strip that away, it’s probably 100 basis points worth of uplift. Last quarter we highlighted that our underlying gross margin today, if not benefited or impacted by something specific in the market, is probably 46.6% or 46.7%. And we do expect to make gradual improvements toward that goal in 2025 as we move forward. That’ll be primarily, continued progress in value pricing as we work to offset high inflation impacts across all of our expenses and then cost reductions.
Steven Chin: Great. Thank you so much.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Harlan Sur from J. P. Morgan. Your question please.
Harlan Sur: Good afternoon. Thanks for taking my question. The team services business continues to drive strong year-over-year trends. Great to see the subscription attached continuing to rise. Utilizations are still depressed across your customer base, but have they stabilized, especially across advanced foundry logic and memory? And then just as a quick one, operating margin in AGS are still about 200 basis points below the 30%. 31% that you drove for six consecutive quarters through fiscal Q3 of last year. Are inflationary pressures still the biggest factor or is it mix related as your 200-millimeter ICAP shipments continue to remain strong and any line of sight on getting back into that sort of low 30% range on AGS.
Brice Hill: Okay, Harlan, thanks for the question. First question on stabilized utilization rates. I think in general, I would say no, because we did see lower utilization rates in ICAPS, as I just highlighted in Q4. And so there is some digestion there in ICAPS, at this point. Otherwise, as I look across the rest of, the segments, if you think about the memory components and you think about leading logic, I would say that’s been fairly stable. On the operating margin side for AGS, and I — thanks for highlighting the business because, we did grow this year despite the setback at removing some of the China tools from our ability to service going forward. That’s really what set us back from a margin perspective and shrank the business in the year and remove some of the, smaller customer, better margin products that we had.
