Bren Higgins: Because we’ve got some new supply coming on related to some extremely long lead-time parts, I would expect that we’ll ship more in 2024 than we have in 2023. And so we still have a fair amount of imbalance here between where our customer demand is and our ability to supply. But there is some catch-up that’s happening there. But those lead-times are still pretty long. The rest of the company somewhere around various across different products, more capacity-centric products. Lead-times are very normal today and around some of the unique products that are critical in terms of industry requirements, those are still a little bit longer.
Joe Quatrochi: Got it. Thank you.
Operator: Thank you. Our next question will come from Chris Caso with Wolfe Research. Your line is open.
Chris Caso: Yes, thank you. Good evening. I wonder if you can speak a bit about the China business right now. A little more color on the strength that you’re seeing and you obviously heard this from your peers as well. And I think the investor questions right now are about the sustainability of the China revenue at these areas. I wonder if you could address that?
Rick Wallace: Yes, absolutely. So a couple of thoughts for KLA in particular relative to China. Because of the actions that were taken most of the investment, nearly all of the investment that all of that we’re exposed to is on legacy nodes. And there’s both mostly that’s to support the industries that are in China where they want self-sufficiency such as EV, and you have a lot of projects going on that require basically greenfield. So you have a fair amount of inspection measurement across the board. But beyond that, there’s infrastructure investment also going on in China relative to the legacy nodes, both now shop and also wafer manufacturing. Those projects, I think, are going to continue for some period of time. So what we don’t see is any – I think the leading edge stuff has already been taken out and they stopped that and of course, for a lot of reasons.
But the legacy continues and it’s pretty broad-based. And we don’t believe that’s going to change in terms of the size or intent of those, and those are things that are projects that are in various stages as they continue to build. So we feel pretty good about the sustainability of the business as we see it right now in China. And Bren can give more specifics.
Bren Higgins: In the near term, in the September quarter, we saw the level as more elevated than what I’d call a run rate as we had other customers that were moving around in terms of deliveries. And so we were able to – so we backfilled that with some of this demand in China. So it did push up a little bit. I would expect it would drop somewhat in Q4, but certainly remain at elevated levels. And it’s certainly something that has strengthened over the course of the year, consistent with Rick’s commentary. So as we look at next year, we’ve got meaningful backlog with these customers, I’ve got a – in excess of 800 million in deposits for shipments for these customers. So I would expect that we’ll see some sustainability of that demand as we move into next year.
And I think it’s really across the segments that Rick talked about. So as I think about growth into next year in that part of the business, I think from a baseline point of view, we see it’s more or less flat. You have greenfield projects as you have construction dynamics that are influencing some timing issues. But in general, I would expect it to continue more or less at that level over a broader period of time. A lot of these orders we booked over the last couple of years and frankly, in the expansion period of 2021 and 2022, are more strategic and larger customers consume the bulk of our slots – so as we’ve seen some slowdown over the course of 2023, that’s created a lot of availability for these shipments and these customers are performing in line with the commitments that they make.
Chris Caso: That’s very helpful. Thank you. Just as a follow-on to some of the other things you said with – as you’re starting to fill some of those orders for, say, some of those Chinese customers that were you weren’t able to fulfill because of some of the shortages before, what effect has that had on the backlog? And is your backlog visibility going out in time about the same as it was last quarter, a quarter before? Or is that backlog visibility is starting to shrink as you catch up on some of those orders that you weren’t able to fulfill before?
Bren Higgins: I would say with new business coming into backlog, but it’s not changing all that much.
Chris Caso: Right. So about the same.
Bren Higgins: I’d say, it’s about the same. Visibility is pretty consistent. Like I said, construction issues would be probably the bigger factor of whether projects would push or not. In a lot of cases, these are our new customers that are getting established. And so aren’t necessarily exposed to some of the economic sort of supply/demand drivers that would affect more established customers. Now, there are those kinds of customers also, and we’re seeing normal behavior from them in terms of how they’re balancing their capacity given their customer demand.
Operator: Thank you. Our next question will come from Atif Malik with Citi. Your line is open.
Atif Malik: Hi, thank you for taking my questions. Bren, in the past, you have talked about the China domestic spending as one-third memory makers, one-third kind of mature foundries, and one-third as a new entrant the market? And my question is like you’re talking about China to drop somewhat in Q4, which segment of the China market you’re seeing the drop off in Q4?
Bren Higgins: Yes. I’m not – I don’t have that detail here. There’s another piece of that that’s also related to the infrastructure investment that Rick talked about, the wafer infrastructure and reticle infrastructure. So, there’s also a component of investment that’s happening there. I don’t – I’m not – we guide at the company level customer-specific activity, I’m not going to get into that.
Atif Malik: Got it. And then Rick, I have a question on gate all around. Historically, you guys have benefited when the transistor move to FinFET architecture. And as we start to see initial orders on data around for some of the deposition companies. Can you talk about what that data around opportunity means for both infection and metrology for KLA?
Rick Wallace: Yes, great question. It means a couple of things. One, obviously, KLA has been in development for a while. So, we had start in terms of some of the architectures that we need to modify to support it. Specifically, we’re leveraging Gen 4 technology instead of Gen 5 because of the nature of the contrast, ability of Gen 4 to see the defects that are relevant to get all around architecture. We’ve made those investments and seen those results, and that’s been one where we’ve leveraged existing technology but also leverage the work we talked about with AI, to provide capability. So, we’re well-prepared for that when it comes to the inspection challenges associated. Metrology, big opportunities there because you’re looking both for increased level of precision when it comes to the actual measurement, larger sample size because of the concerns about consistency across the wafers and across wafer and wafer and also some of the specifics around the high K metal gate control that people are looking for.
So, more capability. Again, we had a head start because as you know, that technology has been in development. So, we’ve worked with development partners on that. So, well-positioned to be able to support that as it expands. So, it’s going to help both process control intensity when it comes to both inspection and with metrology, and we’re well positioned to support our customers to do that.
