Bren Higgins: Yeah. So your first question about margin, and of course, we don’t guide the individual segments. But your assumption of where we are in March is about right. Obviously, we’re going to manage the whole company to the top-level numbers that we provided and not necessarily focus on the individual pieces. The drop-off that you €“ and again, I’m not going to get into each of the quarters from a guidance point of view, but that would imply a fairly low number and then imply that I think that we would drop off more than overall WFE, current WFE expectations, which are down about 20% overall. So it’s hard to say, how much happens when. But 1.1 feels like a pretty low number.
Operator: Thank you. Our next question will come from Krish Sankar with Cowen & Company. Your line is open.
Krish Sankar: Yeah. Hi. Thanks for taking question. Rick, I guess, my first question is just to play the devil’s advocate. Last quarter, you said the process control argument was site detect road map and transition and not as much as to capacity, i.e., less technical. But end of the day, it seems like process control is not immune to the cyclicality. So I’m just kind of curious, are these just like regular cyclical issues process control actually really driven by tech and not capacity purchases, and long lead time inspection doesn’t matter anymore? I’m just kind of curious. Or do you think we get back to trend line in a couple of quarters? Any color on that would be helpful, and then I have a follow-on?
Rick Wallace: Yeah. I mean, I think it is the case, the process control, our business, in particular, is tied both to capacity but also to tech transitions, and it’s certainly not just a tech transitions. So I think, you’ll see the people that are more tied to capacity coming down more in this environment, and people that are tied more to pure tech holding up, and we’re kind of in the middle of those two. Obviously, we have capacity businesses as they relate to, say, metrology that gets added as you add wafer starts. But the work that’s going on in reticle and in advanced patterning inspections will be related much more to the Gen 4/Gen 5 stuff, which won’t see as much of a decline. So I think, we’re kind of — we’re more — we have some more upside to capacity than maybe we did years ago.
But we have — at this point, certainly a large part of our business is associated with technology transfers, and there’s more transfers happening now than there have been in quite a while, because the DRAM guys — memory is — as low as their level of investment is in capacity as in none, they’re still driving technology transitions. And we know there are multiple players now in logic trying to move forward on that. So I’d say it’s a balance approach, which is why we think we’ll outperform this year, but not — we’re not going to hold flat relative to that because we definitely had some capacity components. So no, I don’t say that we’re immune to it, but I think we’re less sensitive than pure capacity plays.
Bren Higgins: Yes, Krish, we do share the market move in 2021, right, from below 6 percentile to the high 7 percentile. And so that clearly was driven by not just the technology transition that we talked a lot about, but also higher exposure to capacity opportunities. And we talked about this at Investor Day that with scaling with a more robust design environment, less reuse overall and more process flows that our customers were investing more in capacity from KLA in capacity environments because they’re managing each design, test design rules in different ways, different process flows as a change in complexity into the fab. And for all those reasons, we were seeing more adoption of process control in what we’ll call a more mature state in the fab.
So obviously, that’s the part that falls off as customers adjust those capacity plans. But to Rick’s point, most of our leverage is in the development area, and it has the fab scales. And so that’s why we feel pretty good about dynamics driving our relative performance this year and a continuation of the SAM expansion that we’ve seen over the last couple of years.
Krish Sankar: Got it. Super helpful. Thanks, Bren for that and thanks a lot Rick. And as a quick follow-up, Intel just said a while ago, they don’t extend their depreciation from five to eight years. I’m just kind of curious if that — does that mean that it’s in the useful life of semi-cap equipment from five to eight years? And what does that mean for us, I mean for process control tools? If you can extend the use of the equipment, does it mean that less purchasing over the longer term?
Rick Wallace: So the actual useful life of equipment has been going up for years, and we showed that in some of our service work. Part of why our service business is growing is because the life extends well beyond the typical — the historical view of that. So, I don’t think that this is anything other than some recognition. There are different practices around the world with how customers choose to amortize or depreciate their equipment. So no, it has no effect. I think we’re back to the same conversation about what drives reuse and what drives the next generation has to do with node migration and the ability for customers to — in the case when they — what we’ve seen a lot of now is filling in of the nodes that historically might have been just moved forward. So no, no change in long-term view based on that decision by one customer.
Bren Higgins: And you’re seeing demand rise in the legacy parts of the market, and that’s been good for not only the service business and extending useful life, but we’re also restarting older generation tools. It’s allowing us to extend the life of existing platforms that we’re selling. Some of our challenges around supply chain has been restarting some of those older generation tools to meet those demands. So I think it’s a reflection of, at least to Rick’s point and how it affects equipment overall, reflection of the strength of some of those markets and those opportunities. The good thing is as we are able to sell those tools, the incremental R&D to support those markets is fairly low. And so it creates a nice vector of not only of growth for us, but also growth in our profitability and leverage in our model.
Kevin Kessel: Thank you, Krish. Chelsea, I believe we’re coming close to the bottom of the hour, top of the hour. Probably time for one more question.
Operator: Yes, sir. Our last question will come from Toshiya Hari with Goldman Sachs. Your line is open.
Toshiya Hari: Hi. Thank you so much for taking the question. I just had a couple of housekeeping questions, if that’s okay. The China impact, the export restriction impact in the December quarter and what you’re assuming for calendar 2023, Bren, sorry if I missed this, but if you can remind us how big the impact could be or was in Q4 and…
