科磊 (KLAC) 2018 Q2 法說會逐字稿

Good afternoon.

My name is Megan, and I will be your conference operator today.

At this time, I would like to welcome everyone to the KLA-Tencor Second Quarter Fiscal Year 2018 Conference Call.

(Operator Instructions)

Thank you.

Ed Lockwood, with KLA-Tencor Investor Relations, you may begin your conference

Thank you, Megan.

Good afternoon, everyone, and welcome to our conference call.

Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Bren Higgins, our Chief Financial Officer.

We're here today to discuss quarterly results for the period ended December 31, 2017.

We released these results this afternoon at 1:15 Pacific Time.

If you haven't seen the release, you can find it on our website.

A simulcast of this call will be accessible on demand following its completion on the Investor Relations section of our website.

Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified.

A detailed reconciliation of GAAP to non-GAAP results can be found in today's earnings press release and in the investor presentation on KLA-Tencor's Investor Relations website.

There, you'll also find a calendar of future investor events, presentations and conferences as well as links to KLA-Tencor's SEC filings, including our annual report on Form 10-K for the year ended June 30, 2017.

In those filings, you'll find descriptions of risk factors that could impact our future results.

As you know, our future results are subject to risks.

Any forward-looking statements, including those we make on the call today, are subject to those risks, and KLA-Tencor cannot guarantee those forward-looking statements will come true.

Our actual results may differ significantly from those projected in our forward-looking statements.

With that, I'll turn the call over to Rick.

Thank you, Ed.

Good afternoon, everyone, and thank you for joining us today.

Leading off with the December quarter highlights.

KLA-Tencor reported another record quarter, delivering new quarterly highs in shipments, revenues, gross margin, non-GAAP earnings per share in the period.

Full year results for calendar 2017 also set records in each of these metrics as well as in free cash flow generation.

These outstanding results demonstrate the dedication that runs throughout our organization to serving our customers and delivering results to our stockholders as well as the long-term value generated in successful execution of the company's strategic objectives.

I'd like to take this opportunity to highlight some of the dynamics underlying our record performance and the momentum we are experiencing in the marketplace today.

I will begin with the orders for our optical inspection products, including both patterned and unpatterned wafer inspection, which grew 18% in calendar 2017, following 11% growth in 2016.

Total optical inspection revenue grew to record levels for the second consecutive year in 2017.

The same expansion we are experiencing in these core markets for KLA-Tencor are partially driven by strong customer acceptance of 3 of our major patterned inspection systems: GEN 5, our flagship broadband plasma inspection platform, is being deployed by customers across all segments and is solving their most critical defect and yield challenges.

The ramp of GEN 5 is performing to our expectations and we are seeing an increasing number of layers implemented for production, for advanced logic and memory devices.

In addition, the GEN 4 broadband plasma inspection platform and the Puma laser scanning platforms continue to provide the most cost-effective wafer inspection performance to meet current yield and quality production requirements.

Additionally, our unpatterned or bare wafer inspection and metrology products are also experiencing record demand today.

Wafer manufacturers have been adding new process control capability to meet strong wafer demand, while IC customers are adding new bare wafer products to support more stringent wafer flatness and processed tool cleanliness specifications in a greater number of layers for advanced technologies.

Next, KLA-Tencor is playing an enabling role in bringing EUV lithography technology to market by collaborating with every EUV customer to accelerate technology development and yield learning for critical wafer and mask inspection applications.

The process control applications inherent to EUV mainly lie in mask manufacturing and requalification, resist qualification and scanner control.

These, along with the unique patterning and defectivity issues associated with the current EUV source technology present market opportunities that we believe KLA-Tencor is uniquely positioned to address with the most comprehensive suite of product technologies in the industry.

We are already generating meaningful revenue from early adoption of EUV, and this new technology promises to be a positive catalyst for future growth of the advanced process control market and as the market leader for KLA.

And finally, growth in China.

Investment in the Chinese semiconductor industry is currently driving an inflection in demand for the global wafer fab equipment market, and the China buildout is expected to be a major factor underlying industry growth for years to come.

As the leader in process control, KLA-Tencor's market position in China is strong, both in terms of customer share and in adoption.

Orders from native Chinese customers nearly tripled in 2017, and this strong momentum is expected to continue into 2018.

In conclusion, KLA-Tencor's December quarter and calendar 2017 results demonstrate the company's innovation and technology leadership.

We are operating from a position of strength as we embark on another year of expected growth and strong stockholder returns.

Looking ahead to 2018, given our record backlog levels and the strong momentum we are experiencing in the marketplace today, revenue growth is expected to be in the high single digits for the year and is positioned to outperform overall WFE industry growth.

As always, KLA-Tencor's strong relative performance will be fueled by our market leadership, the critical nature of process control and our customer success and our continued focus on operations execution.

The stage is set to build on the momentum and record performance delivered in calendar 2017 and deliver what we expect to be another exciting year of growth in 2018.

I will now turn the call over to Bren Higgins for his comments.

Bren?

Thanks, Rick, and good afternoon, everyone.

As Rick highlighted in his opening remarks, KLA-Tencor delivered another outstanding period of financial performance and operational execution in the December quarter and in calendar 2017.

Shipments, revenue, non-GAAP gross margin and non-GAAP diluted earnings per share each came in at the upper end or above the range of guidance, and achieved new records in both the December quarter and for the calendar year.

Revenue in the quarter was $976 million.

Non-GAAP diluted earnings per share was $1.97, and would've been $1.83 at the guided tax rate of 18% for the quarter.

GAAP loss per diluted share was $0.86 in December, largely resulting from a charge taken in the quarter for the transition tax on historical cumulative earnings outside of the U.S., and tax asset and liabilities revaluation related to the new tax law.

In our press release, you will find a reconciliation of GAAP to non-GAAP diluted earnings per share.

With the exception of when I explicitly refer to GAAP results, my commentary will be focused on the non-GAAP results, which exclude the adjustments covered in the press release.

Now turning to highlights of the December quarter demand environment in terms of shipments.

Total shipments were $1.041 billion in December, up 7% sequentially and finishing above the guided range for the quarter as customer pull for tool deliveries across the product portfolio drove upside to the quarter.

Looking forward, we are modeling March quarter shipments to be in the range of $945 million to $1.025 billion.

Our expectation is for shipment levels for the first half of calendar '18 to be roughly flat compared to the second half of 2017, and with low to mid-single-digit half-to-half growth planned in the second half of the calendar year.

For the full year, shipments are expected to grow in the high single digits compared with 2017.

Memory was 71% of shipments and in line with our forecast for the quarter.

Demand was roughly evenly split between DRAM and NAND.

Memory will continue to dominate the system shipment mix in the March quarter with memory shipments expected to be approximately 70% of the quarter total.

Foundry was 20% of shipments in December, as expected, and foundry is forecasted to be about 15% of shipments in March.

Logic was 9% of shipments in the December quarter, and is currently forecasted to be 15% in March.

In terms of the approximate distribution of shipments by product group: wafer inspection was 47% of shipments; patterning was 30%, patterning includes orders for reticle inspection; service was 21%; and non-semi was approximately 2%.

I'll turn now to further details of the income statement.

As I mentioned in my highlights, revenue was $976 million in December.

We expect revenue to be in the range of $970 million to $1.03 billion in the March quarter.

In terms of half-to-half expectations for 2018, we are currently modeling revenue in the second half of the year to grow in the low- to mid-single digits versus the first half of the calendar year.

Non-GAAP gross margin was 64.6%, a new record for the company and above the guided range of 63% to 64%, largely as a result of a stronger-than-modeled product mix.

We expect gross margin to be in the range of 63.5% to 64.5% in the March quarter.

In the earnings call last October, we provided gross margin expectations of 63% to 64% for calendar year 2018 based on our expectations for revenue growth, customer acceptance of key products, cost management and execution and the mix of system business in the year.

Looking ahead, we believe our gross margins will likely bias towards the higher end of this guided range in 2018.

Total non-GAAP operating expenses were $262 million in Q4, up as expected compared with the September quarter due to expenses related to advanced technology development programs for EUV lithography.

Non-GAAP operating margin was flat compared to Q3 at 37.7%.

We are currently sizing operating expense levels to be approximately $255 million in the March quarter.

Beyond that, our outlook is for quarterly operating expenses to be in the $260 million range throughout calendar year 2018 based on our expectations for high single digit revenue growth for the year and consistent with our published business model.

Given the strong gross margin profile I referenced, we should continue to deliver operating margins at the higher -- or the upper end or above this model for the foreseeable future.

Our non-GAAP effective tax rate was 11.5% in the quarter, resulting from the required true-up of our tax rate estimate for fiscal year '18 ending in June due to the reduction in the U.S. federal tax rate from 35% to 21%, effective January 1. Included in the GAAP results is an estimated charge of approximately $442 million associated with the new tax law passed by Congress and signed by the President in late December.

The vast majority of the charge is related to the transition tax for the cumulative historical earnings the company earned outside of the U.S. In addition, we also incurred a charge related to revaluing our deferred tax assets based on the lower U.S. tax rate.

This tax charge will be adjusted over the next few quarters as additional financial information and regulatory guidance and interpretation becomes available.

In terms of the expected impact of the new tax law on KLA-Tencor, our preliminary analysis indicates the changes in the tax law will be beneficial to the company and to our stockholders as the annual ongoing U.S. tax liability for the company will be meaningfully lower.

Furthermore, the new territorial tax system will enable us additional flexibility to repatriate future foreign earnings and allow access to cash to productively invest in the business, pursue compelling strategic growth opportunities and return cash to stockholders without any additional U.S. tax liability.

Based on our initial modeling, we expect the overall worldwide tax planning rate of 20%, provided last October based on the expected mix of business in 2018, to decrease by approximately 500 basis points and allow access to all free cash flow generated, irrespective of geographical IP ownership or manufacturing location.

As a result, going forward, the new recommended tax rate for modeling purposes is 15%.

Finally, net income for the December quarter was $309 million and we ended the quarter with 157 million fully diluted shares outstanding.

I'll turn now to the highlights from the balance sheet and our cash flow statement.

Cash and investments ended the quarter at $2.76 billion, a decrease of approximately $298 million compared with the September quarter, primarily due to the repayment and maturity of $250 million in public bonds and a net reduction of $40 million in bank loans.

Cash from operations was $129 million in the quarter and free cash flow was $116 million.

For the full year in 2017, free cash flow was $1.14 billion.

Consistent with our proactive track record of returning cash to stockholders, we believe that unallocated free cash flow is valued only when it is productively deployed.

Going forward, the new tax environment will afford the company additional flexibility to continue to optimize this fundamental aspect of the company strategy.

We'll have more to say on this topic in the coming weeks.

In December, we paid an aggregate of $92.6 million in regular quarterly dividends and dividend equivalents for fully vested restricted stock units, and repurchased $40 million of common stock pursuant to our share repurchase program.

The company has approximately 4.9 million shares remaining under our share repurchase authorization.

In conclusion, KLA-Tencor's results in December reflect our market leadership and our industry-leading business model.

This, coupled with ending total backlog of approximately $1.9 billion, position the company for strong relative growth versus the wafer fab equipment market in calendar year '18.

Current forecast is for the WFE market to grow mid-single digits in 2018.

Against this industry setting, we are modeling the company revenue to grow in the high single digits in the year, stronger than the broader market and with operating performance expected at the high end of the range of these revenue levels in our target model.

So with that, to reiterate, our guidance for the March quarter is: shipments in the range of $945 million to $1.025 billion; revenue between $970 million and $1.03 billion; and non-GAAP diluted EPS of $1.85 to $2.09 per share, with GAAP diluted EPS of $1.84 to $2.08 per share.

This concludes our remarks on the quarter, and we'll now turn the call back over to Ed to begin the Q&A.

Thank you, Bren.

(Operator Instructions) Okay, Megan, we're ready for the first question.

(Operator Instructions) Our first question comes from Farhan Ahmad with Crédit Suisse.

My first question is on the overall strategy for capital deployment, can you just talk about how you're thinking about -- just given that the tax reform has finally passed.

And if I think about your prior commentary, you have always said that if there is a tax reform you would think about giving back more to the shareholders.

So if you can just comment on that, that would be really helpful.

Sure, Farhan, it's Bren.

Thanks for the question.

Yes, no -- it's certainly an exciting time for the company and I think given our historical track record around how we think about deploying cash in the business, either investing in the business or how we look at M&A opportunities or certainly returns to shareholders, it's an opportunity that adds additional flexibility to what we can do going forward.

As I said in the prepared remarks, we don't have any updates today.

Although we do expect to have more to say on the topic in the coming weeks.

I would say philosophically, our position is no different.

We have a great business, a strong business model.

It's not capital-intensive and so the free cash flow margin is pretty strong.

And so we have the ability to return, I think, a fair amount of cash to shareholders, if that is where our process takes us.

We're not compelled to, at this point, to do any significant delevering.

We've been doing that over the course of the year.

We have the leverage in the right place for the company.

And so going forward, I think we have to look at the alternatives and make those calls.

Our feelings haven't changed.

We're going to grow the dividend, certainly over time, consistent with the growth rate and in cash flow and -- or the earnings of the company and we're going to target a payout ratio that's somewhere in the, through cycle, 40% to 50%.

So I think that part of the strategy is well understood.

And as far as the cash reserves on the balance sheet, we'll have more to say about that coming in the next few weeks.

Got it.

And then [into that] to my second question, can you just talk about the e-beam versus optical?

There is a concern in the market that as ASML is ramping their Holistic Lithography that can be a threat to your business.

Can you just, at a high level, talk about how do you see that as a competitor to the optical inspection technology?

Sure.

We've seen, as you know, Farhan, the GEN 5 has really been the tool we've been deploying for leading edge, really, across the board with our customers in terms of advanced memory, both in NAND, but also in DRAM, but also in advanced logic, and we've seen good adoption of that.

As we said in the prepared remarks, we continue to see development being -- leveraging the capabilities of GEN 5. And that product has a lot of legs.

As you know, that was recently introduced and there's quite a road map for that.

So customers definitely want the coverage capable of only really delivered by GEN 5, and they want to have -- continue to be able to leverage optical, just the price performance relative to e-beam.

There is a place for e-beam.

There's been a place for e-beam for many years, and we suspect that will continue.

But on a relative basis, we had a record year in optical wafer inspection in 2017 and we expect that to continue in 2018.

Your next question comes from the line of Harlan Sur with JPMorgan.

We're hearing that, in addition to using GEN 5 for print check and also for early defect learning for EUV-based technologies, that some of your customers may be actually looking to use GEN 5 for high-volume production even this year before EUV, just given some of the yield challenges associated with some of these next-generation manufacturing technologies.

Is this something that you guys are actually seeing, and is this shift with your foundry and logic customers?

Or just also across some of your memory customers?

Harlan, great question.

As is typical, when we introduce a new tool depending on the particular user and their ability to understand the value and to leverage it, some of the early users tend to deploy first in production.

We are seeing it in production on some layers.

There are typically the more critical layers where providers have pronounced benefit from capabilities they had before.

We have had recent customer experience where they're now able to detect in-line defects that they before could only see end-of-line as they were missed by prior optical tools and also not detectable by e-beam.

So those tools are being deployed in-line.

It really -- it's in both logic and memory structures, perhaps a little more surprising with some of the memory applications that we have seen.

So we're encouraged by those signs and we fully expect that to continue.

Yes, Harlan, it's Bren.

The only thing I'll add is that if GEN 5 -- the reception to GEN 5 from a value perspective has been really strong with the customer base over the last 12 to 18 months or so.

And as we look at 2018, part of the company's year-to-year performance is driven by a bigger contribution from that product line.

So you mentioned print check, certainly, there's a lot of value that's demonstrated there.

I mean, defect discovery is still the place where it competes and where we saw the growth there, where it has made significant inroads against the e-beam opportunities, for the reasons Rick talked about earlier, but then also in some of these really high-end opportunities in early production and difficult layers.

So really, across all segments, we're pretty confident with what we're seeing there and excited to get a higher level of adoption of this product as we move forward over the course of the year.

Great.

And then on EUV mask inspection, as EUV starts to ramp here, what's the traction been like with the Teron platform in conjunction with GEN 5 for print check?

First question.

And then more importantly, for kind of next-generation high-volume EUV mask inspection, can you guys just give us an update on your multi-beam mask inspection platform, what's been the early feedback from your lead alpha customers here?

Sure.

The Teron isn't really used for print check, it's used for the mask development, so, and that's -- we're seeing great demand for that across a number of players simply because of the increased activity in terms of EUV mask production.

So that's really the workhorse right now for the industry in terms of for the mask shop.

And we have had a lot of interest in multi-beam.

I do think customers, as they contemplate high volume, they're going to work through, I think, a couple of scenarios.

The most likely is there'll be some level of e-beam inspection and there'll be print check inspection.

And the print check -- we're well suited to support that with the GEN 5 platform.

And there's a lot of interest, as I said, in the multi-beam, and we've got heavy customer engagements on that front.

But as we said when we first started discussing that tool, that's still a ways out.

I think that we will intercept the market when it's needed in terms of volume.

Right now, it's really people preparing for volume down the road.

Your next question comes from the line of CJ Muse with Evercore ISI.

I guess, first question, when I think about your WFE guide and I compare it to Lam's, you're coming in a little bit lighter and it sounds like DRAM was one of the principal drivers of the uplift, at least for them.

So I guess, a question off of that, which is, are you contemplating upside from DRAM within your model here in calendar '18, particularly, as you think about some of the more logic-related structures that are being adopted as we move to 18-nanometer?

Would love to hear your thoughts on that front.

Yes, CJ, I don't think we're that far off of where Lam is.

We're talking about the beginning of the year and a few percentage points, so there's a margin for error on this that probably puts this all on about the same place.

I think, fundamentally, the way they talked about segments, from what I understand, was around memory with DRAM strength, NAND flash strength in the year.

We think we see a little bit more logic strength, at least around our business.

And in foundry, it looks like it will be down some.

So add it all up, you end up in this mid 5%-, 7%-type single-digit growth rates.

We're encouraged by what we're seeing in DRAM in terms of adoption from a process control intensity perspective.

They have more logic in devices, you also have the dynamics that are happening in China that are good for process control adoption, or intensity as well.

So I think one of the good, really strong stories about the company right now, given the improvements we've seen in intensity, is to have a year that is this strong around memory and have the company in a position to perform, at least in line with the market and at least as the way we've been lining up perhaps a little bit better.

So we're really encouraged by what we're seeing across all segments and I think there's opportunities for us to solve unique problems given the technology transitions that are in front of us.

That's helpful.

And I guess as my follow-up, as you think about second half rise in shipments, and I guess, I'm making the assumption that -- correct me if I'm wrong, that logic foundry will be greater percentage there, which I would think would deliver upside to gross margin.

So should we be contemplating an uplift to gross margins through the year for you guys?

So I think the way you're modeling it in terms of the segment mix half-to-half, is right.

I mean it's still pretty strong memory through the course of the year, but foundry logic does pick up into the second half.

I think one of the wildcards on the year is the order profile into the December quarter, and in that timeframe, it's pretty strong around foundry.

So depending on when those orders actually materialize, if there's a pull-in, does that create opportunities at the end of the year, to ship those tools or not.

Right now we have it slotted the way that we do, with these [4] orders in Q4.

So around gross margins, our gross margin profile across the different segments is not any different.

I mean, the way that the company delivers value, we share value with customers, the ROI is understood, the pricing is very consistent and so sometimes mix or products changes a little bit, but I'm modeling gross margin consistent with the prepared remarks, biased to the higher end of the range of 63% to 64% that I mentioned.

And over the course of the year, movement within the quarters will be driven largely by some smaller product mix issues here and there.

But I expect most quarters to be operating in and around the range I mentioned in the prepared remarks.

Your next question comes from the line of Edwin Mok with Needham & Company.

I have just follow-up question on China.

I think some of your peers is talking about kind of increased spending from the domestic memory chip makers now.

And I think, historically, an investor base means that, that will be really positive for KLA.

Just curious, where do we stand on that?

Do you have any update in terms of the cadence of that spending?

Are we seeing a strong pickup this year?

Or is it more like in '19?

Yes, so it's been a good segment of business for us, China as a region.

As Rick mentioned in his comments, we saw a tripling of native China bookings in calendar '17 versus calendar '16.

Those orders tend to come with longer lead times given the nature of not just new fabs but also new fabs and new locations.

So there's always infrastructure and other requirements that are part of the equation to get something up and running.

As we look at calendar '18, I don't see any change in momentum.

I think the mix shifts a little bit.

Where it was more 50-50 memory foundry in calendar '17, again, this is from an order perspective, calendar '18 seems a little bit more foundry-heavy.

But the contribution roughly is the same, in the same range.

So we're very encouraged by what we're seeing there.

And as these projects come up to speed and they start to make progress, I think that's going to influence the timing of the next round or next phases of investment that happen over the coming years.

But what's in front of us looks pretty good.

Okay, great.

Just to be really clear, so you are basically not -- your kind of low-single-digit growth does not factor in comp growth in China.

It sounds like you expect a [constant level], but a mix shift there.

Is that correct?

We shipped more in '17 than we shipped in '16.

My commentary was focused on the order mix.

So yes, there is more contribution from China in terms of shipment and revenue, native China, in the calendar '18 numbers than there was in calendar '17.

And then my follow-up question is on the bare wafer or unpatterned wafer inspection market.

It's really strong right now but, historically, that business tend to be more -- I don't know how to say it, finicky or they come, go bigger cycles, right?

Has anything structurally changed for that market that gave you confidence that demand is sustainable?

A couple things, I think -- it is true, first of all, that those businesses happened to be very strong when there's a reinvestment cycle.

But there's a couple of -- into new technology, and that can be driven by a couple things, but one is the volume, of course, drives it.

And the other one is when there are new specs relative to particulate based on design rules.

The other thing we're seeing is the flatness market growing.

And an acquisition we did years ago is doing very well inside the bare wafer market to measure wafer flatness.

And that's being driven a lot by additional requirements driven in part by 3D NAND.

And so we're seeing new specs driving new tool purchases in addition to the traditional drivers of volume and sensitivity.

Your next question comes from the line of Romit Shah with Nomura Instinet.

I just had one question for you, Rick.

It just seems like as demand for AI and servers/high-performance computing hardware inflects that -- the size of the silicon that powers that functionality is also growing at a fairly tremendous rate.

NVIDIA's got a V100 GPU that they say has north of 20 billion transistors.

And so the byproduct of that is that you've got these very high-performance CPUs and GPUs but the yields are not great.

And it would seem like the implication here is that demand for top-tier process control equipment should be stronger benefit from this trend, and I was hoping you could talk about that.

Sure.

Yes, absolutely one of the main drivers is the push for AI and also the high performance computing just in general as a category.

And we are seeing -- it plays really out in a couple places for us.

One, it drives additional designs, which drives mask, which drives our mask business, so we are seeing benefits.

And then in the fab, the additional complexity of those very advanced chips drives everything about complexity including defectivity requirements because of larger die and also the metrology requirements associated with it.

So it is a positive inflection for us overall, and it's going to be in multiple foundries as well, not just in one.

So there are other players in that.

So we expect that to be something that continues to drive the need for process control as we go forward.

Is it fair to say that this trend, as it accelerates, is good for your blend of ASPs and then, consequently, your gross margins over time?

Well, certainly the percentage of tooling, as Bren mentioned, we're not really customer-dependent on gross margin as we are mix.

But as the process gets more complex, the mix of customer use case tends to go toward the more advanced tools.

So sure, we would see a benefit in terms of our overall profitability and business level based on advanced devices of any kind pushing demand forward.

So yes, absolutely, it's a driver for us.

(Operator Instructions) Your next question comes in the line of Patrick Ho with Stifel, Nicolaus.

Rick, in terms of memory capital intensity, you've talked about in the past how 3D NAND and a lot of the manufacturing challenges there has helped increase process control intensity.

I know we're at the early ramp of the new 64-layer devices that we're seeing in the marketplace, but as we go to 96 and 128, are the increases in layer going to continue to help in capital intensity?

Or have we kind of just reached maybe a leveling at this time?

I think you said you've gained 1 or 2 percentage process control intensity points with the planar 3D transition.

How do you look at it as we go to more layers?

Great question.

And the answer is there's more opportunity and there's 2 ways for us to address that.

One is continued and even more deployment of existing tools, which I don't think will drive intensity significantly higher, if that's all we do.

But we do have new tools in the pipeline to address 3D NAND and when those come online, and they're going to be in support of these advanced technologies, then we can actually drive increased adoption based on new use cases.

There are more problems in 3D NAND, metrology and defectivity, than we can solve right now.

And if we can bring the new tools out and get those in, and those are something that we're targeting for -- in the next 12 to 24 months having -- starting to make an impact on the market.

So yes, that will drive intensity up.

Great.

And a question for Bren.

In terms of managing the supply chain.

Obviously, yourself and the rest of the equipment industry -- you're seeing record demand today and you've been able to turn around tools at a pretty rapid rate, even as demand trends continue to rise.

You're also managing your inventories and AR really well.

What have you done over the last couple of quarters especially as you've seen this rise in demand and your ability to continue to, I guess, deliver to the customers given their kind of strict and tight timelines for tool deliveries?

Yes, well, it hasn't been easy.

A lot of heavy-lifting by the operational teams to execute in this environment.

I mean, one of the things that we've done, I think, pretty effectively across all of our products is to do a lot more hedging of long lead time materials, whether we're buying supplier long lead time materials or we're buying our -- the assembled parts.

And that shortens the lead time and gives us a little bit more flexibility to be able to deliver.

So that certainly is one of the things we're doing.

I mean, obviously, we're making stronger commitments further out in some cases to be able to make sure we've got the supplier ramping their capacity to be able to support us.

So a lot of tactical things there to be able to deliver that.

We're spending some time, sometimes sending our own guys out to work with our suppliers to improve their processes, to deliver better yields of parts and so on, to be able to meet our needs.

So a lot of small things there.

We're, like everybody else, we're putting a lot of pressure on the chain.

Some of our suppliers are unique and supply only to us in this space, so that helps in some cases.

But it's a challenge, but so far we're doing okay with it.

And I'm really pleased with the leverage and the operational execution in the factories across the world for us.

Your final question comes from Atif Malik with Citigroup.

Rick, I have a question on your foundry opportunity.

TSMC owner's earnings call talked about a flattish CapEx with capital intensity longer-term coming down from a low 30s -- to 20% to 30% for them.

Within that declining capital intensity, can you just talk about how do you see PDC opportunity for you?

I assume your EUV opportunities is obviously growing within that CapEx, but just talk about the PDC opportunities for you guys.

And then I have a follow-up.

Sure.

I think that the foundry capital intensity ranges depending on where we are in the cycle and the customer, but it's somewhere in the order of 15% to 17%.

We see upside to that, if we can provide more capability as we discussed earlier in 3D NAND.

There are problems that are unsolved in terms of foundry and especially as we get to EUV.

So we think that'll tend toward the high end of that range.

And customers, of course, are going to try to optimize their investment and try to minimize their investment in capital and in process control.

So we are constantly showing that we have -- creating value for them and then we share that value in terms of the way we deploy in the market.

So I think as we're modeling it forward, it continues to be in that 15% to 17% range.

Great.

And then Bren, are you expecting your logic plus foundry opportunity this year to be flattish over last year, like prior comments?

Or has there been a change to that?

As I look at it, I look at the breadth of customers investing across foundry, and it's more of a shipment statement, I think the foundry shipments are probably down a little bit.

So I think our expectations would be -- around foundry, as I said earlier were foundry down a little bit, logic up, DRAM strong and NAND obviously strong as well.

So that's how you get to the guidance we provided for WFE.

Megan?

There are no further questions at this time.

I'll turn the call back over to presenters for closing remarks.

Okay.

Thank you, Megan.

Thank you, all, for joining us today, and enjoy the rest of your day.

And this concludes today's conference call.

You may now disconnect.