Bren Higgins: And so we’re looking at that and working our way through it. It’s quite complex. But preliminary estimates based on the, I’ll call it, the baseline that was established in October of last year. Right now, we don’t see any real material change to our business expectations related to those new regulations. But we’re working our way through it, it’s complex.
Operator: Next, we’ll have Timothy Arcuri with UBS. Your line is open.
Timothy Arcuri: Thanks a lot. Bren, everyone’s asking about 2024 WFE, but I guess I’m still a little confused as to what the right baseline is for this year because pretty much everyone has now guided for Q4. So if I take you plus applied plus Lam, yes, it’s down 13%. So that would mean that your $80 billion number might be in the ballpark off of that mid-90s last year. But if I include ASML, it’s like flat. I mean even if you exclude the fast shipments, it’s fairly down. So how is WFE down this year? I guess I’m just trying to get some understanding of like how you get to that $80 billion number. Is it excluding ASML somehow? Thanks.
Bren Higgins: Yes, Tim, we’re not experts on this. What we do is we take a look at what – we look at the universe of peer companies and how they report. If you look at what our customers say, we have some modeling that we do. And we come up with an estimate for that. So this year is a little hard because of fast shipments, and I don’t even really understand all the nuances in that and that’s for you guys to figure out. But also some of the issues that affected some of the other providers in late 2022 in terms of their ability or inability to deliver in 2022 and how that shows up in 2023. But when we look at how we’re performing overall, we think that it’s in and around that low. Certainly, the fact that we’re down given our – our belief about our market position. And if you look at Semi PC based on the guidance we provided being somewhere around down, we’ll call it, 9%, 10%, somewhere in that ballpark. It doesn’t feel flat to me.
Timothy Arcuri: Okay. All right, Bren. And then I guess my second question is on inventory. It’s now up to almost 300 days. It’s up like $500 million over the past six months, but we’re not really sure when WFE picks up inside of next year. I get that you still have this huge $10.8 billion worth of PO that you’re kind of working off. But why is this stuff parked so far out in the future? Is it – and if so, why hold the inventory now? What’s the bottleneck? Is there something on your side still that’s a bottleneck? Or is it more that the orders have been placed and maybe waiting for the fab to be ready to take the equipment and that’s why you’re building up the inventory. I guess I’m just not sure why you would build the inventory if this stuff is still parked so far in the future. Thanks.
Bren Higgins: Yes, Tim, it’s a great question. It’s a little bit of the trade-off that we make, and I spent a lot of time talking about how we were able to outperform the industry for a couple of years in a row in terms of some of the supply chain challenges that others were facing that we weren’t. Part of it has to do with how we manage our suppliers. We do have a lot of long lead time parts and so if you just go back to, we’ll call it, 15 months ago, we thought 2023 was going to be a growth year on top of what we thought was going to be $100 billion year in 2022. So we had made commitments. We were putting commitments out longer to get our suppliers to invest. We’ve invested in them in terms of partnering on their capacity expansions.
We manage our – so I place those commitments to suppliers, we’ve been able to manage what we can, but in a lot of cases, we honor our commitments. And we feel that in the long run, we’re in a good position in terms of the longevity of our platforms and where we expect demand to come from that will consume those parts. So some of it is what you’re optimizing for in terms of our differentiation in terms of how we work with our supply chain, and we’re accepting that we’re going to be pretty good customers. We’re going to move up to our commitments and take the parts that we’ve committed to. So we feel pretty good in the long run about our positioning in terms of our ability to grow when we see a reacceleration from the industry. And the other issue is that our service business continues to grow, right?
It grows every year, and that growth drives a fair amount of demand in service. It’s a high complexity high mix, low-volume business. And because of the customization of the parts, we tend to have to do end-of-life buys and have to buy a lot of parts to support that business. When you look at our margin profile overall for the company, feel like the trade-offs we’re making are appropriate. And we think it’s played a big role in our relative success.
Operator: Thank you. Our next question will come from Charles Shi with Needham. Your line is open.
Charles Shi: Hi. Thanks for taking my question. This morning, I think one of your smaller peers in Europe, they talked about seeing some weakening of the mature in foundry, logic side I wonder if KLA is seeing something similar. I mean either through your process control business or the PC business? If not, why is that? And I have a second question. Thank you.
Bren Higgins: Not really. Look, we’re watching for certain parts of, I’ll call non-China legacy exposure to automotive, industrial, some of those markets to see if that has an effect on customer demand. But right now, our expectations around legacy in the near term has been fairly consistent.
Charles Shi: Got it. So Bren, maybe a question on OpEx. Both of your peers in the bay area, they are raising their OpEx for basically the next calendar year. How should we think about KLA’s OpEx going into next year, say, you talked about you’re expecting revenue to be run rating at the current level? Should we be thinking OpEx is kind of flat until you see the uptick in the revenue? I mean, before you really raise the OpEx. Thanks.
Bren Higgins: Run rating at the current level does give you a little bit of growth into next year. And as I said, we would expect to see growth in service. I actually think EPC probably has some modest improvement off of pretty depressed levels our incremental operating margin model drives how we’re running the business in terms of expectations for leverage on incremental revenue. So I would expect to see a modest uptick in OpEx. We’re also balancing sort of near term in terms of how we’re sizing for the current environment, but also our long-term investment, requirements. And given our market position and our desire to go to market with the portfolio that we think is a competitive advantage for KLA does drive some requirements for investment.
And we’ll do that independent of top line when appropriate. But as we’re looking out going forward, I would say that we’ll probably see OpEx tick up a little bit as we move through 2024, but not a big change more in line with general kind of post living type adjustments overall.
Operator: Thank you. Our next question will come from Joe Moore with Morgan Stanley. Your line is open.
Joe Moore: Great. Thank you. You talked about maybe a little bit of weakness at the cutting edge of foundry/logic. Wonder if you could talk about that. And then I guess, just contextually, if we’re in an environment where there’s very aggressive investment in gate all around and backside power, but they’re sort of limited wafer requirements in year one for those technologies. I would think that helps KLA in terms of percentage of WFE, but can you just walk us through how much of your – how much money will they spend on the development of those processes versus the expansion of wafer that capability there?
Rick Wallace: Well, so we still – we do get investment at the front end, but for more for development, but the ramp phase is really where you see – that’s where you see more of it. So you get it at the front when they’re doing development and then this starts to ramp to get more. And we get less incrementally across the portfolio as you in high volume. So yes, it would help us in terms of intensity around those new nodes, but often, those companies are also expanding the trailing nodes at a similar time, more or tooth generation. So on balance, it doesn’t look that different overall as most of these companies ramp up at if that makes sense. So you get it at the front end, but the rest of the – so you look at process control intensity, it doesn’t really change that much in foundry/logic year-to-year because they’re investing across multiple parts.
