Lam Research Corporation (NASDAQ:LRCX) Q3 2024 Earnings Call Transcript

Lam Research Corporation (NASDAQ:LRCX) Q3 2024 Earnings Call Transcript April 24, 2024

Lam Research Corporation beats earnings expectations. Reported EPS is $7.52, expectations were $7.1. Lam Research Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone. And welcome to the Lam Research March 2024 Earnings Conference Call. [Operator Instructions]. Please also note, today’s event is being recorded. At this time, I’d like to turn the floor over to Ram Ganesh, Head of Investor Relations. Sir, please go ahead.

Ram Ganesh: Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today’s call, we will share our overview on the business environment, and we’ll review our financial results for the March 2024 quarter and our outlook for the June 2024 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release can also be found on the Investor Relations section of the company’s website along with the presentation slides that accompany today’s call. Today’s presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings.

Please see accompanying slides in the presentation for additional information. Today’s discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. We are having some technical difficulties posting our earnings call slides externally. We will try to post it as the call is going on, if not, we will post it on our website after this call. And with that, I’ll hand the call over to Tim.

Timothy Archer: Thanks, Ram, and thank you to everyone joining us today. Lam is off to a strong start in calendar 2024. With revenues, profitability, and earnings per share for the March quarter all exceeding the midpoint of our guidance. These results, as well as our outlook for the June quarter, point to Lam’s solid execution in an industry environment that is progressing much as we predicted in our January call. Today, we see industry WFE spending for calendar 2024 in the low to mid $90 billion range, with the modest increase from our prior view driven mainly by additional lithography shipments into China. We see no meaningful change to our outlook for Lam’s overall 2024 revenue profile. From an industry perspective, DRAM remains strong, with WFE spending driven by growing demand for high bandwidth memory and sustained investment in domestic China.

In Foundry Logic, growth and leading edge spending this year is being partially offset by a decline in mature node spending outside of domestic China. Domestic China spending is running higher than we had previously expected probably we still see it being first half weighted with Lam’s revenue contribution from China declining as the year progresses. In NAND, we continue to expect year- on-year growth in WFE spending in calendar 2024. Encouragingly, we’ve seen an uptick in fabulization and in the March quarter, this is translated into double digit percent growth quarter- over-quarter in our spares revenues. The supply and demand continue to normalize to the remainder of the year, we see a strong setup developing for 2025 NAND spending. As we move toward a broader WFE recovery, Lam stands to benefit from powerful secular drivers of semiconductor growth and innovation.

Generative AI and other emerging smart applications are built on a foundation of semiconductor technology and are expected to deliver trillions of dollars of economic benefit at a global level over the next decade. AI’s transformative use cases, foreseen in both consumer and enterprise markets, are only in the early stages of realization and we believe that significant investment in semiconductor manufacturing capacity will be required to satisfy the coming demand for advanced compute, memory, and storage. In this environment, the winners will be the equipment companies that can accelerate the pace of technology advancement while at the same time deliver innovations that disrupt the rising cost and complexity of semiconductor fabrication. To this end, Lam is investing in two differentiated approaches.

First, we are putting more capabilities and resources close to our customers to strengthen collaboration. And second, we are leveraging Lam’s proprietary semiverse solutions digital twin capabilities to reduce the time and cost of technology development. Already, we are seeing Lam’s distributed R&D footprint having a positive effect. In the past quarter, we’ve used our customer-centric lab investments in Korea, Taiwan, and the US to accelerate cycles of learning on new applications resulting in important wins for Lam in both DRAM and foundry logic advanced packaging. With respect to semiverse solutions, we leverage a portfolio of digital twins created at the scale of the device, the process, and the reactor to model complex interactions that influence tool performance and productivity.

Lam’s engineers now regularly use these capabilities to optimize multidimensional etch and deposition process recipes faster and with less on-tool wafer experimentation. Turning to demand related to AI, the early impact has been most prominent in DRAM and foundry logic. We believe, however, that AI’s impact on storage is still ahead and represents a key vector of long-term growth for our NAND business. More advanced AI applications need faster, more power-efficient, and higher density NAND storage. NAND-based enterprise solid-state drives, or ESSDs, are 50 times faster in read-write capability, 2 to 5 times more power efficient, and use 50% less space at the system level compared to hard disk drives or HDDs. Today, over 80% of enterprise data is stored on HDDs. And we expect this mix to shift in favor of SSDs as NAND capability and cost continues to improve.

This is where Lam is playing a key role by enabling technologies which are critical for both performance and cost scaling. In deposition, for example, Lam is leading the transition from tungsten to molybdenum in the worldwide to improve device access time and reduce stack height per storage cell. In etch, Lam is using high aspect ratio cryogenic etch to enhance productivity of memory hole formation. Today, we are approaching 1,000 Cryo Etch chambers in our high-volume manufacturing installed base. In partnership with our customers, we’re using the tremendous amount of data coming from this installed base to rapidly improve technology and cost at each successive layer transition in NAND. Recently, we combined the learning from the installed base with the capabilities of our semiverse solutions simulation tools to further strengthen our differentiation.

As a result of our accelerated innovation, we have defended every NAND high aspect ratio memory hole etch production decision made so far by customers. With respect to DRAM, AI servers use high bandwidth memory, or HBM, to increase read, write speed and reduce server power consumption. HBM stacks multiple DRAM dies using TSVs, enabling 15x more data throughput than standard DRAM. However, HBM also requires an approximate threefold increase in wafers per bit compared to conventional memory. With this in mind, it’s important that our SABRE 3D and Syndion tools not only provide best-in-class plating and etch capabilities, but also deliver industry-leading throughput and productivity to keep overall costs low for our customers. We are the leading player in TSV applications for HBM and expect our HBM-related shipments to grow more than three times in calendar year 2024.

Finally, on the foundry logic side, Lam tools, including selective etch and ALD, are well-positioned to help enable the move from FinFET to gate all-around, a key transition needed to improve transistor performance per watt by 15% to 20%. We see our shipments for gate all-around nodes in calendar year 2024 exceeding $1 billion. Lam tools are also enabling foundry logic inflections such as backside power delivery, molybdenum interconnects, and drive holders as processes for EUV patterning. Our traction with customers is strong on these inflections, and together, they represent a multi-billion dollar growth opportunity for Lam as AI drives a greater need for faster, more power-efficient devices. To conclude, the proliferation of AI, the global push for localized chip manufacturing capacity and the ubiquity of semiconductors in new consumer and commercial products represent powerful, secular drivers for Lam and the rest of the semiconductor equipment industry in the years ahead.

We are pleased with the company’s execution and our results in the March quarter and remain focused on our opportunity to outperform through this next leg of industry growth. Thank you, and I’ll now turn it over to Doug.

Doug Bettinger : Great. Thanks, Tim. Good afternoon, everyone, and thank you all for joining our call today during what I know is a busy earnings season. We delivered solid results in the March 2024 quarter. Our March quarter results came in over the midpoint of our guidance ranges for all financial metrics. I’m pleased with the company’s continued robust execution. We achieved the highest gross margin percentage since the merging of Lam with Novellus. We also continued to generate very strong free cash flow of $1.3 billion or 34% of revenue. Let’s dive into the details of our March quarter results. Revenue for the March quarter was $3.79 billion, which was roughly flat with the prior quarter. Our deferred revenue balance at the end of the quarter was $1.75 billion, which was a decrease of $182 million from the December quarter related to revenue recognized that was tied to those customer advanced payments.

I believe deferred revenue will continue to trend downwards as we continue throughout the year. From a segment perspective, March quarter’s systems revenue and memory was 44%, which is a decrease from the prior quarter level of 48%. The decline in the memory segment was attributable to DRAM coming in at 23% of systems revenue versus the 31% that we saw in the December quarter. DRAM spending was focused on the 1Y, 1-alpha, and 1-beta nodes, spending largely driven by DDR5 and high bandwidth memory enablement. As we noted in the last quarter, non-volatile memory WFE is increasing in 2024, but it remained at a subdue level on a mixed basis for the March quarter. This segment represented 21% of our systems revenue, up from 17% in the prior quarter.

I do just want to mention one thing. We are characterizing one customer’s investment in specialty DRAM as a non-volatile investment, since it has a non-volatile component to the device. This might be different than what others in the industry are doing. NAND investment was driven by very modest spending and conversions to 2XX and 3XX layer devices. The foundry segment represented 44% of our system’s revenue, a slight increase from the percentage concentration in the December quarter of 38%. Growth was driven predominantly by domestic China shipments. And finally, the logic and other segments were 12% of our system’s revenue in the March quarter down from the prior quarter level of 14%. The decline was driven by continued mature node softness.

Now, I’ll discuss the regional composition of our total revenue. The China region came in at 42%, up slightly from 40% in the prior quarter. While most of our China revenue continued to be from domestic Chinese customers, this was the largest quarter for multinational spending in China since mid-last year. We expect spending from this region to increase year-over-year in 2024. I believe it will, however, decline as we go through the year. Our next largest geographic concentration was Korea at 24% of revenue in the March quarter versus 19% in the December quarter. Japan and Taiwan rounded out the remainder of the top four regions. Our customer support business group generated revenue in the March quarter totaling approximately $1.4 billion. This was down 4% from the December quarter and 13% lower than the March quarter in calendar year 2023.

Our Reliant systems revenue decreased in the March quarter due to continued weakness in mature node investments, partially offset by a higher level of spares. Reliant is at the lowest revenue level in the last two years, and spares is at the highest revenue level since the end of 2022. The spares business is seeing very early signs of positive impact from utilization increases from our customers. Turning to the gross margin performance, the March quarter came in at 48.7% above the midpoint of our guided range, and above the December quarter level of 47.6%. The increase was primarily a result of favorable changes in product and customer mix, as well as improved factory efficiencies. March quarter offering expenses were $698 million, up from the prior quarter amount of $662 million.

This was due in part to expenses incurred for an extra week in the quarter. I’ll remind you, it was a 14-week quarter, as well as our conscious growth in R&D spending. As Tim mentioned, we remain laser-focused on investing in R&D to extend our product and competitive differentiation. R&D, as a percentage of spending, was at a high watermark coming in at 71% of total spending. Operating margin for the current quarter was 30.3% in line with the December quarter level of 30% and at the high end of our guidance range. This was primarily because of the strong gross margin performance, which was somewhat offset by the growth in R&D investment. Our non -GAAP tax rate for the quarter was 11.7% consistent with our expectations. Looking further into calendar 2024, we continue to believe the tax rate will be in the low to mid- teens with some possible fluctuations quarter by quarter.

Other income and expense for the March quarter came in at $10 million in income, compared with $5 million in income in the December quarter. The increase in OI&E was due to higher cash balances and higher interest rates. OI&E will be subject to market-related fluctuations that could cause some level of volatility quarter by quarter. On the capital return side of things, we allocated approximately $860 million to share repurchases and we paid $263 million in dividends in the March quarter. Our share repurchase activity included both open market repurchases as well as an accelerated share repurchase arrangement. The ASRs continued to execute into the month of April. And I would just mention, we continue to track towards our long-term capital return plans of returning 75% to 100% of our free cash flow.

March quarter diluted earnings per share was $7.79 towards the higher end of our guided range. The diluted share count was 132 million shares on track with expectations and down from the December quarter. We have $1.2 billion remaining on our board authorized share repurchase plan. Let me pivot to the balance sheet, our cash and short-term investments at the end of the March quarter totaled $5.7 billion, up a little bit from $5.6 billion at the end of the December quarter. The increase was largely due to collections with an extra week in the March quarter offset by cash allocated to share buyback, dividend payments, and capital expenditures. Day sales outstanding was 57 days in the March quarter, decreased from 66 days in the December quarter.

Inventory at the end of the March quarter totaled $4.3 billion, down $107 million from the December quarter level. Inventory turns remained flat from the prior quarter level at 1.8x. We are making progress in bringing inventory levels down, and we will continue to work on this throughout calendar 2024. Noncash expenses for the March quarter included approximately $77 million in equity compensation, $75 million in appreciation, and $15 million in amortization. Capital expenditures in the March quarter were $104 million, down $12 million from the December quarter. Spending was primarily centered on Lam expansions in the United States and Asia, supporting our global strategy to be close to our customers’ development locations. We ended the March quarter with approximately 17,200 regular full time employees, which was flat with the prior quarter.

Let’s now turn to our non-GAAP guidance for the June 2024 quarter, we’re expecting revenue of $3.8 billion, plus or minus $300 million, gross margin of 47.5%, plus or minus 1 percentage point. This gross margin decline from March is reflective of a quarter-to-quarter change in customer mix, operating margins of 29.5%, plus or minus 1 percentage point. This reflects our continued commitment to prioritize R&D spending. And finally, earnings per share of $7.50, plus or minus $0.75, based on a share count of approximately 131 million shares. So let me wrap up. 2024 is a year of continued transformation for Lam Research. We’re investing in our long-term strategy to extend our technology leadership and operational excellence while efficiently managing overall spending.

We’re encouraged that the long-term drivers of semiconductor growth, such as artificial intelligence, are seeing accelerated adoption. And we expect Lam to be a strong beneficiary of these trends. We are well-positioned for the architectural and material change coming, such as gate-all-around, advanced packaging, backside power delivery, and the move to dry photoresist. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question today comes from Krish Sankar from TD Cowen.

Krish Sankar: Yes, hi, thanks for taking my question. I have two of them. First one for Tim. Tim, a question on high aspect ratio, etch for NAND, very high market share. And you said in your prepared comments, you defended market share there. Your competitor, the Tokyo Electron, introduced a Cryo Etch product a year ago, but you also have one from three years ago. So I’m kind of curious. Can you talk a little bit about the market share dynamics and high aspect ratio etch? And the fact that some of your customers are talking about using Cryo Etch for like 430 Lam NAND. So can you give us some color there on high aspect ratio, etch? And then I’ll follow up with Doug.

Timothy Archer: Sure. Kris, on Cryo Etch, I mean, I had a couple of data points in my prepared remarks. But one is we have an installed base of Cryo Etch tools used for NAND that’s now approaching 1,000 chambers. So obviously, we’ve been in high volume production with this application for quite some time. And my comment was that there always are customers exploring different options during the development phase. But as my comment is, these are very complex processes to put into high-volume production. And so we continue to leverage the learning that we get working with our customers to focus on technology extension and manufacturing readiness. And by that focus, we’ve been able to defend the decisions once they come to that point of the customer really having to decide which tool to commit their next fabrication line to incidence. So all we can say is we’re working hard to make sure we have the best tool for the application. And so far, it’s winning the day.

Krish Sankar: Got it. So good to hear that the share is still solid. And then a follow-up for Doug on margins. Doug, you kind of mentioned about the gross margin, maybe moderation in the June quarter due to the customer mix. Is it mainly a function of China and how to think about gross margins in the second half? And maybe if you can extend that question, how to think about OpEx into the back half of the year too.

Doug Bettinger : Yes, Kris, I guess I’d say a couple things. First, gross margin sometimes is a little bit better when we’re selling to smaller customers. And I’m not going to pin it to any one geographic region necessarily. But in China, there are some smaller customers, and they tend to, because we have volume purchase pricing sometimes, they pay a little bit more. But it’s not because of the geographic region, it’s because of the size of the customer. So that’s one thing to think about in my scripted remarks as well as what Tim said is we think that the China region will modulate a little bit as we go through the year. So that’s part of what you need to think about. And I’ve been talking about this for a couple of quarters.

So anyway, have that in mind when you’re updating your models. Second, we’ve been talking I think for a couple of quarters now, maybe actually three quarters, about the need to grow R&D investment this year because of these technology changes that we see like gate-all-around, backside power, advanced packaging and so forth, dry photoresist. And we are absolutely planning on doing that. You saw that in the March quarter, R&D is a percent of total spending was the highest that I have seen here at 71% and we intend to keep investing in R&D. So independent of whatever the top line is, we are going to grow R&D investment this year.

Operator: Our next question comes from Timothy Arcuri from UBS.

Timothy Arcuri: Thanks a lot. So I want to ask about China. So it’s good to modulate through the year the mix, but it sounds like it’s still going to be up year-over-year for domestic China this year. So I guess my question is, we’ve seen some headlines on a few entities being potentially added to the entity list and I’m wondering if these comments reflect the potential addition of these entities. Or does it basically say, hey, if the status quo remains, this is what your assumption is, meaning that if there were entities added, that would be downside to these comments.

Timothy Archer: Yes, Tim, I mean, obviously, we can’t forecast changes in U.S. trade policy with respect to China that we don’t know about. And so, we’re basically giving you our best view of what we think our China business will be through the rest of the year and recognizing that there could be changes that we don’t foresee. And what I will say is we, obviously, we’ve built up what we believe is a strong government affairs team. We’ve plugged in to all the relevant discussions. And I think over the last couple of years, you’ve seen we have a pretty strong track record of working with the U .S. government, responding to export control policy, and that’s just what we’re trying to do going on in the future.

Timothy Arcuri: Sure, thanks, Tim, thanks. And Doug, I just wanted to ask about service a bit. So there’s so much different dynamics happening in the Spares and in the Reliant business. Can you talk about that? Because certainly sounds, I mean, this is kind of an odd situation that we’d have, Spares be so strong and Reliant be so weak. So can you sort of give us any read throughs there? Like, what does that mean for the future of that business? Thanks.

Doug Bettinger : Yes, listen, I think it’s well understood right now that you got two dynamics going on relative to thinking about the different components of CSPG. First, industry utilization is starting to get somewhat better. I would definitely say it’s early days for that. But the reason I specifically talked about the Spares level versus where it’s been over the last couple of years is because of that. That clearly is beginning to show up in our Spares business. However, when you look at CSPG in total, we were down now because of the softness in Reliant. I also think that’s pretty well understood in the industry, right. Mature node investment outside of the China region certainly is pretty soft right now. And so you have those two competing dynamics going on that’s showing up in the CSPG line. If I was guessing, Tim, right now, CSPG is probably flattish this year from last year because of those two offsetting dynamics, if that helps you think about it.

Timothy Arcuri: Perfect. I got it.

Timothy Archer: Tim, I think the only thing I would add there is when you think about the CSPG business a little bit longer term. I mean clearly, we commented on utilization starting to pick up, but as we move into 2025, I think we also will see significant upgrade activity coming back in, especially in the NAND space. We talked about the fact that there is a large portion of that installed base that has not yet been moved towards the technology nodes that are most useful for our customers, and so I think that will also flow through into the CSPG business in perhaps not so much this year, but clearly as we move into 2025 and beyond.

Operator: Our next question comes from Harlan Sur from JPMorgan.

Harlan Sur: Good afternoon. And thanks for taking my question. With an accelerated compute and AI semiconductor segment to the market, there still seems to be a lot of constraints centered around high bandwidth memory and tightness and [inaudible] packaging. Obviously, you guys have a very strong position here, as you mentioned, Tim. You guys previously talked about this business, this opportunity is being potentially like a billion dollar per year type of revenue opportunity, but just given the strong demand pull and some of the expanding use cases, I mean, is the Lam team already on track to drive a billion plus dollars in advanced packaging revenues this year? And now that the trends are in place like what’s kind of your new or maybe revised view on the revenue opportunity here for the team over the next few years?

Timothy Archer: Yes, Harlan, I think that you’re right. There is strong pull, and I mean, obviously, we are responding as quickly as we can to the demand. Our advanced packaging equipment this year will be over a billion dollars, and so that’s kind of an important milestone for us. I don’t know how to give you like that next milestone, obviously we’re seeing tremendous growth and demand in this area. Our positions are strong, not only as you said in the Foundry Logic side of advanced packaging, but also as we talked specifically about our very strong positions in HBM related, what we consider packaging side of HBM. And so I think it’s just an area where we’ll see good long-term growth. We are investing again in this area. We’ve talked in the past about our work in the panel processing space, trying to look ahead to see where the packaging market is going to go to make sure that we are fully capable of taking advantage of what we see as a real long-term secular driver for semiconductors and the equipment industry.

Harlan Sur: Yes, no, congratulations on hitting that milestone. For my follow-up question, with your customers and their spending outlooks looking more constructive, their cycle dynamics continues to improve, you got strong tailwinds on manufacturing complexity translate the growth. Look appears quite solid right for the team. So if I look out beyond this year and the ramp of your new Malaysia manufacturing facility I mean not only, is it low-cost geo like you guys have mentioned, but you’ve got highly skilled workforce. You also set up the supply chain support infrastructure locally as well. So I don’t know if it’s for Tim or Doug but is there any way to think about the incremental gross margin benefit on incremental revenues that flow out of the Malaysia factory as you start to load it.

Timothy Archer: Let me take the first part of it and then I’ll let Doug talk specifically about the gross margin comment. I think it’s one thing that that I think we’re feeling very comfortable with which is your last question was boy there must be a lot of demand and you’ve got to be ramping up for that. I think as we come into this next up cycle, we feel very well positioned relative to all the things you just talked about the physical capacity, the trained workforce, the supply chain has been built up and made more resilient since the last big upturn in the industry where we saw lots of constraints. And so I think from that standpoint, we feel really good that we have executed on the operation side of the house, now we just need to start seeing the kinds of new peak volumes that will demonstrate that externally. And I’ll let Doug address here gross margin question.

Doug Bettinger : Yes, Harlan, I guess I just remind you what I’ve said in prior quarters, which is I don’t want you to run ahead of that financial model we put out in 2020. That’s still the right way to think about it. Now, obviously right now we’ve got quite favorable customer mix. I don’t expect that to continue long. I don’t know maybe I’m wrong about that but the benefit from Malaysia after we came to the inflationary stuff and whatnot was completely how we intend to get back to the gross margin and better than that financial model, maybe we can push a little higher. Certainly, we’re not going to stop staying focused on that. But that’s the way to think about it is Malaysia is still into the future, it will show up when we ramp incremental volumes and we’re ready for that.

Operator: Our next question comes from Srinivas Pajjuri from Raymond James.

Srinivas Pajjuri: Thank you. Doug, I think on the China side, just one clarification, were you expecting China to moderate in this quarter? Did it come in better than you expected? And then, just to go back to your comment about China moderation through the rest of the year, any particular segment within China, I mean, is it DRAM or is it logic or is it both? If you can add some color to that, that’ll be helpful.

Doug Bettinger : Yes, Srini, it came in pretty much as we expected. I suggested last quarter that it was going to continue to remain pretty good in March. So no, that was pretty much as we expected. And I don’t know like at a segment level that I’ve got any specific color for you relative to the China slowing a little bit in the second half. There’s such a broad set of customers there that are in every segment. It’s in DRAM. It’s in foundry. It’s in logic and it’s a broad set. So when we look at that in total, I do see it somewhat weighted here to the early part of the year and it’ll modulate somewhat, but nothing specific I had to share with you from a segment standpoint.

Srinivas Pajjuri: Thanks, Doug. And then maybe for Tim. Tim, some of your large customers got, pretty good amount of subsidies from the government recently on the CHIPS Act and other stuff outside of the U.S. as well. So I’m just wondering what sort of impact should we expect in terms of your own business as, I guess that money comes in and any, I guess, thoughts on the timing of potential orders from this incremental funding that they’re getting? Thank you.

Timothy Archer: I mean, obviously, you’ve seen in just even the last few weeks quite a few announcements about the CHIPS Act grants in the U.S. I’ll also note that there are similar CHIPS Act programs going on in places like Japan and obviously a little bit further out in the future in Europe and elsewhere. And so, we’ve always said these are more of a ‘25, ‘26, ‘27 timeframe from the equipment side, especially the shorter lead time tools like we provide. So you see the FAB coming up, a lot of construction connectivity, you see long lead time tools go in and then we know that our time will come. I mean and so I think it’s still a ‘25, ‘26, ‘27 opportunity for us. But the important thing is, well, that’s a lot of extra money that maybe what’s really exciting about it is most of that is targeted towards truly the leading edge nodes.

And one thing about Lam’s story is that we have focused a lot of R&D investment to build our position in leading edge foundry logic in the next generations of DRAM and high bandwidth memory as well as of course continuing our strength in NAND. And so as we see these new fabs come up, I mean it’s not only additional spending, but it’s at nodes where we believe that we will actually do better from a SAM and market share perspective. And so we’re patiently waiting, but we know it’s going to come. You can go visit the sites. The fab buildings are there, and they’re feverishly working to get them ready for equipment.

Operator: Our next question comes from C J Muse from Cantor Fitzgerald.

Christopher Muse: Yes, good afternoon. Thank you for taking the question. I guess first question, I wanted to try to get a little bit more color on your updated WFE outlook. It looks like you’re taking it up by about $7 billion. You talked about that being really litho, not impacting you. So I guess should we infer from that you’re still expecting WFE up kind of low to mid-single digits? And as part of that, how are you thinking about those four large drivers, particularly I guess two or three of them, and the growth potential there and the relative outperformance that you expect to see?

Timothy Archer: Yes, CJ. I mean, obviously one of our peers in the industry reported last week. We took a look at it and just have a view that we missed a little bit of what was shifting into China. That is the vast majority, if not all, of the change in WFE from our point of view. There are always some moving pieces. DRAM is maybe a little stronger. Trailing etch, foundry logic is probably a little bit softer. But at the end of the day, the biggest change that we saw was litho. We missed it a little bit because it’s not part of our addressable market. I’m not sure I caught all of the second part of your question, CJ. Try it one more time.