Operator: Thank you. Our next question will come from Sidney Ho with Deutsche Bank. Your line is open.
Sidney Ho: Great. Thank you. I want to ask about the DRAM strength that you guys are seeing. It seems like that was the main source of revenue upside in the quarter, and it looks to be – based on your comments, down slightly in the next quarter, in calendar Q4, how much of that strength is coming from shipping to the DRAM customers in China that you alluded to in the past? And how much of that is tied to advanced DRAM technology, high bandwidth memory and whatnot. And when you look at Q4, which part of that segment is going to come down?
Bren Higgins: Yes. So when I look at the details, certainly, the shipments into China, which were expected were a driver from the baseline. As I look at the December quarter, in DRAM, I think you’ll see a little bit of a mix across customers, but I don’t think the number really – the absolute number doesn’t really come down all that much. So, most of the investment is in that area or it’s in the area that you alluded to, right, in terms of supporting some of the AI demand that’s out there. But – and then maybe just general R&D investment that’s happening. So it’s a pretty low level overall and the bulk of it coming from some catch-up related to the China customer that we referred to.
Rick Wallace: One other area, we are seeing some when it comes to the interposer in terms of packaging-related base fee. So that is also a driver, smaller at this point, but the growth projections are good. Remember, as DRAM is going to leverage EUV as the investment resumes, that’s going to be a great opportunity for us to continue to penetrate when it comes to the R&D, but that’s not what’s driving it right now.
Sidney Ho: Okay. Great. And maybe a follow-up for me. If you look at the SPC systems revenue, it looks like it’s going to be down 5% to 7% in calendar ’23. I think a quarter ago, that number was like down 10% to 12%. Can you talk about what has changed? Is it just that the WFE market has improved somewhat? Or are there other KLA specific reasons that you will point out. But more importantly, how do you think that outperformance will do next year considering some of the areas that you are strong in this year may see some moderation? Thanks.
Rick Wallace: I’m sorry, for EPC or would that was SPTS.
Sidney Ho: Yes, for FCC?
Rick Wallace: Okay. Got it. Look, we had some strength – we continue to have strength, kind of the same things we talked about strength in optical. I think the process control intensity hasn’t slowed across our customers, and we continue to see wafer being strong. We talked about macro being strong. So it’s really across the portfolio of leading edge. The thing that’s falling off the most when it comes to capacity has been the product areas that are most linked to wafer starts and those would be things like overlay and films. But when it comes to the technology inspection, continued strength there.
Bren Higgins: Yes. And I think the infrastructure parts of the business as well. We’ve seen that hold up fairly well, both in China, as we talked about in terms of doing mature, we’re building capability to not only provide wafers, but also to do mature reticle sets for all the design activity that is happening. So you’ve got that. But then on the wafer side, you also have investments that are happening globally as those customers prepare for not only as capacity comes out fairly slowly in that industry, preparing for the resumption in demand that we’re expecting here in the near future, but also different strategies around inventory stocking, more wafer-to-wafer bonding other demand for wafers. So that’s also been a driver that we’ve seen hold together fairly well as we this year.
Process control intensity is helping in I’ve been pretty open with it over the course of the last year that despite some catch-up that might happen with some peers related to challenges in 2022 with supply, we felt pretty good about our positioning and our exposure to some of the fastest-growing markets overall. The mix of business that’s more logic, foundry-centric and this infrastructure exposure that I referred to.
Operator: Thank you. Our next question will come from Krish Sankar with TD Cowen. Your line is open.
Krish Sankar: Yes. Hi. Thanks for taking my question. Rick or Bren, I’m curious, you mentioned like the demand profile stays in the first half of next year. But some of your peers are called calendar 2024 like a transition year. And how do I overlay the fact that memory could rebound in the back half of next year, how to think about these industry WFE or KLA revenue profile next year?
Rick Wallace: So I’ll take part of it and Bren can answer. We don’t know what 2024 is going to look like. We just don’t know. And we know what our customers are saying right now. But they don’t really know yet either. So we’re talking about a sustained level of business kind of being similar to what it is right now until we have a reason to believe it’s going to go up. Customers talk about things improving. We have meetings and they talk about asking us to get ready. But until we actually see it happening, we don’t really know. So it’s very hard to talk about the levels. What we do know is you have historically low levels of investment company right now in memory, and we see the same thing as you do in terms of pricing. And then we’re well positioned for ramping when it does ramp.
We also know we have some very good indications on some of our long-term product that – our products that have long lead times. But as Bren said, like an optical inspection or capacity constrained, not demand constrained on those. So that’s kind of how we’re looking at it. We don’t really have any unique visibility into 2024 than those general trends and the fact that utilization seems to have stabilized and is increasing on some of our market segments, but not much visibility beyond that.
Bren Higgins: Yes. Look, I made the comment about utilization rates, and I think that’s encouraging in terms of the stabilizing environment that we’re articulating here. That’s certainly a factor. We, of course, we watch our customers business models, their profitability, their cash flows that will, okay, you’re seeing the industry digest the capacity that was added and then get sort of healthy again and see pricing and all those things improve. But then one of the catalysts that are going to drive growth into next year. In our near-term, as we said in the prepared comments, we see roughly this level of business as we move through the first half of the year. One of the things that we really focus on is we’ve got to make sure that we’re flexible enough to be able to respond.
And so we’ve made a lot of investments over the last few years in our supply chain and our own capacity to make sure that we have the flexibility to respond, because I would expect that we could get surprised. We usually do. And so we want to make sure that we’re in a position that we’re not we’re not constrained in our ability to supply and meet that when it happens. So that’s our focus. And I think the color we provided in terms of how to think about the company and how we’re sizing the company in the near-term is reflected in KLA.
Krish Sankar: Got it. Got it. Thanks, Rick and Bren. And then a quick follow-up. As you said, has seen the recent export control work has no material impact to your outlook?
