Harlan Sur: Guys. Thanks for taking my question. Your services business last year was strong, right? It was up 15%. Historically, like this segment does not decline during downturns, right? Very stable subscription services contracts, expanding support opportunities, legacy nodes, more software attach, et cetera. But you do have a transactional part of the business, right, tied to manufacturing activity. You’ve got your EPC services business in there as well and the impact from China export control. So lots of puts and takes. So does the team believe it can grow services revenues this year?
Bren Higgins: Yes. Yeah, you’re right. We do have some puts and takes. But if you look at the — and just for some history, right, if you look at our service business overall as it relates to semi process control, we’ve only had one down year going back at least the last 20, maybe 25 years, and that was in 2009, where we’re facing an extremely challenging macroeconomic environment. So you’re right that when things slow down, particularly in memory, as an example, customers will scale back in terms of the utilization of their equipment. But we still have a lot of equipment that’s coming off of warranty that’s going into contract that’s been shipped over the last few years. Customers continue to run the installed base typically to support even if they’re not investing in new capability.
EPC is a little more transactional, and I would expect EPC service to be flatter year-to-year. So I don’t think we’re going to grow like we did this year, where we grew 15%. But I would expect to see a mid to high single-digit growth rate in services overall. So I think when you look at our overall business, and we talked about semi PC growing roughly in line overall with the market, maybe a little better than that. Service is growing mid to high single digits. And I think EPC Systems is going to be somewhere in less than — have a decline, but a decline that’s less than what we’re seeing on the WFE side. So because we have had a weaker 2022, that business is much closer to consumers. And so I think they entered into some of the more challenging environment a little bit sooner, but that’s how we’re thinking about the overall.
Rick Wallace: And the other factor, Harlan, when you consider our business, our service is pure service, as we talked about. And also it’s really not about consumables. So from the standpoint, their capacity goes down, some of the consumable related service business will go down as a result. Ours because of the nature of what we do, and often, even if customers are constraining capacity, they’re trying to optimize yield, and so that’s why I think our service fares pretty well in this kind of environment.
Harlan Sur: Great. I appreciate that. And strong patterning growth in 2022, I think patterning was up like 50%. Obviously, part of that is being driven by EUV, DUV little adoption. And if you look at ASML’s results, I mean that continues strong. But I think they’re looking for EUV little systems being signed off, units being signed off this year to grow like 40%, both for EUV and Deep UV. So those shipments are always sort of a good board indicator for your business? You’ve got positive exposure of wafer, your reticle inspection systems, print check, litho metrology. Is this going to be one of the — it was clearly a bigger driver last year. Is this going to be one of the bigger drivers of the potential out-performance this year for the team?
Rick Wallace: Well, I think you’re right in some regards. And certainly, when it comes to technology transitions, a lot of what’s driving the metrology is related to those tech transitions such as gate all around, right? The work that’s going on there is driving it. But there is a part of that business that’s tied to capacity. So that’s really puts and takes inside of that business. So it’s not entirely just related to the tech. And again, when you look at the overall market growth in the different segments, our view of lithography as part of WFE is a little different than what was stated maybe overall because of the deferred revenue component of that. So again, I think KLA is going to do well as we go forward in 2023. And the metrology as it pertains to technology advancement development will be strong.
And both in — as both metrology and overlay related as companies, our customers try to advance in terms of the tech notes that have a lot of challenges in those two areas.
Operator: Thank you. Our next question will come from Vivek Arya with Bank of America. Your line is open.
Vivek Arya: Thanks for taking my question. If you look at the full year WFE view of down 20% in the kind of the mid $70 billion, that view — that overall view doesn’t seem to have changed in the last three months. But something else seems to have downshifted in the commentary from you and your peers. I’m just curious if, Rick or Bren, if you would take a look back in the last three months, what has changed from an assumption perspective? Is there a certain part of the market that you are exposed to? Like has there been any change in the last three months? Because the overall number doesn’t seem to have changed.
Bren Higgins: Yes, Vivek, it’s a good question. Not much has changed, frankly, in terms of how we’ve looked at it. Obviously, we had the strength of Q4, which contributes to the marginal weakness in the March quarter, where we had $184 million in incremental revenue above the midpoint in December. And so that clearly came out of the March quarter. So that puts a little bit of pressure on the March quarter. But as we look at the overall year, it generally looks very similar to what we had three months ago. So I don’t think that much is different. It feels pretty consistent.
Rick Wallace: Well, I guess, yes, it’s kind of similar to what we said. But at the time, it wasn’t what a lot of customers were saying yet, right? So at that time, there hasn’t been as many announcements for CapEx reductions. So we kind of forecast that, that was going to happen. And so with that kind of the news, it kind of got to this point where we’re about where we said. That wasn’t the case when we first viewed what was probably going to be a correction in 2023. So I would say it’s kind of landed where we thought, but there was a fair amount of news in getting there as people said they’re going to cut their CapEx.
Vivek Arya: Got it. And for my follow-up, if I’m hearing you, March is perhaps not the trough quarter for the year that, I don’t know, maybe it’s June or September. Any way to gauge what that kind of conceptually the trough quarter could be? Because when I look at memory, I think it’s only about 15% of process control in Q1. Is that the trough for memory, or can it get even lower than that?
Bren Higgins: Yes, Vivek, I’m not going to guide each of the quarters. It feels today like things are stronger likely in the first half. There’s some investments at the very end of the year that could cause the December quarter to be stronger depending on the timing of the fab construction. And so there are some things in, I’ll call it, in Q4 that could swing the quarter-to-quarter one way or the other. But as I said earlier, I think that the second half is likely lower than the first half, and I’ll stick with that for now.
Operator: Thank you. Our next question will come from Brian Chin with Stifel. Your line is open.
Brian Chin: Hi, there. Good afternoon. Thanks for letting us ask a few questions. Maybe just to double back on the performance obligations. It sounds like — I could be a little bit off here. But in terms of 12 months RPOs, maybe it’s — maybe ended the December quarter kind of a $6 billion-ish kind of level. Is that about right? And is there a point in terms of as you draw that down a little bit maybe over the next few to several quarters, is there a point in the year you can kind of point to where you think that number will stabilize?
Bren Higgins: So we’re going to report — we’ll likely file our Q sometime in the next day or so, so you’ll have the specifics on it. But your math is about right. It’s a little bit higher than that, and we’d still expect 45% to 55% beyond 12 months. And as I said, some of the adjustments that were made were related to some more clarity around China export restrictions, so that was a factor in some of our adjustments. I think, as we progress through the year, look, we’ll see how the order flow plays out over time. But — and there’s still work to be done in terms of whether we are able to continue to get some licenses that we’re still working through in some time. That could have an effect as well. But I don’t expect to see — I think, it’s going to level off. I don’t expect to see it come down all that much. I think, it will level off, as we move forward over the course of the year. But, look, things can change, and that’s the best visibility I have today.
