KLA at Bank of America Conference: Strategic Growth Amid Challenges

On Tuesday, 03 June 2025, KLA Corporation (NASDAQ:KLAC) participated in the Bank of America Global Technology Conference 2025, presenting a strategic overview marked by optimism and challenges. The company’s CFO, Bren Higgins, discussed KLA’s market position, growth prospects, and the impact of China on its business, highlighting both opportunities and potential hurdles in the current landscape.

Key Takeaways

• KLA expects $850 million in revenue from advanced packaging in 2025, up from $500 million.
• China’s contribution to KLA’s business is expected to decrease from over 40% in 2024 to about 30% in 2025.
• KLA’s service business is projected to grow at a low double-digit rate, driven by the extended lifespan of their tools.
• The company aims for a gross margin of 63% in 2026, with a mid-60s target for 2025.
• Advanced packaging is a significant growth driver, with 70% of its growth in process control.

Financial Results

• Advanced packaging revenue is projected to rise to $850 million in 2025.
• Service business growth is anticipated at a low double-digit rate, benefiting from longer tool lifespans.
• Gross margin guidance stands at 63%, with a mid-60s outlook for 2025.
• Operating margins are expected to exceed the incremental target of 40% to 50%.
• Revenue from China is projected to decline, accounting for approximately 30% of total business in 2025.

Operational Updates

• KLA is experiencing growth at the leading edge, particularly at the 2 nanometer node.
• The service business faces challenges due to restrictions in China but remains strong with a 75% contract revenue stream.
• The advanced packaging market, valued at $9-10 billion, is expected to grow faster than the core wafer fab equipment (WFE) market.

Future Outlook

• Significant investment is expected in leading-edge technologies, with potential growth from PC, phone, and AI markets.
• KLA anticipates WFE growth slightly outpacing semiconductor revenue, which is projected to grow at 7% to 8%.
• The company plans to invest in the next node by 2026, with logic foundry WFE and process control growing faster than core WFE.

Q&A Highlights

• China’s impact on long-term WFE intensity is expected to normalize.
• KLA’s services business differs from peers by excluding systems upgrades and refurbs.
• Advanced packaging contributes to KLA’s higher-than-market growth, supported by unique product capabilities.

In conclusion, KLA Corporation’s presentation at the Bank of America Global Technology Conference 2025 highlighted its strategic focus on advanced packaging and leading-edge technologies. For a detailed discussion, please refer to the full transcript.

Full transcript - Bank of America Global Technology Conference 2025:

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: Okay, excellent. All right, good afternoon everyone. Thank you for joining us for this session. I’m Vivek Arya from BofA Semiconductor Semiconductor Equipment Research team. Really delighted to have the team from KLA join us, Bren Higgins, Chief Financial Officer.

And as usual, I’ll go through my fireside questions, but please feel free to raise your hand if you would like to bring something up. But really welcome to you, Brent. Really glad that you could join us.

Bren Higgins, Chief Financial Officer, KLA: Yes, Vivek, good to see you. Thanks for

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: having me. You as well. Maybe as a start, Brendan, just give us a lay of the land. How are you seeing the demand environment versus what you thought at the start of the year? Right?

There’s there’s just been a lot of macro noise over the last few months, and I’m wondering how your demand, right, along the different food groups, how that has evolved.

Bren Higgins, Chief Financial Officer, KLA: Yeah. You know, it’s a great question, and and there has been noise, but at the same time, we we really haven’t seen much of a change. Overall, our customers have been very committed. And if you look at what they’re investing in and what’s driving our business today, you can understand why. Certainly, at the leading edge, and we’re we’re happy to have a return of growth at the leading edge after couple of years where, you know, things were more legacy centric.

But certainly at the leading edge, a lot of investment at the two nanometer node. I think we’re pretty well positioned at the two nanometer node. We’re seeing higher levels of intensity for KLA. KLA share of market at the two nanometer node, higher than three nanometer. As the customer has high designs, a large number of designs more than they had at three nanometer at a similar state, advanced design rules, changes in architecture which drives different defect challenges and process control challenges.

Anytime you have a architecture change it tends to be very good for process control. If you go back to FinFET, we were approaching 8% of WFE then, and we’re in that same neighborhood today as we move to a gate all around architecture. Large die is a big deal for high performance compute. And if you just think about large die and what it means to yield with a similar number, if you have a a set number of defects and you have large dye, your yield is impacted pretty significantly. We have, we’ll call it, you know, 20 dye on a wafer versus a hundred dye on a wafer with the same number of particles.

So large dye that are very valuable to our customers, and so the defect challenges, advanced design rules, and then the value of the actual chip, very good for process control. Most of the investment that’s happening in DRAM is high bandwidth memory focused, high bandwidth memory chips are larger than DRAM chips. That’s it. That’s a a consumer of capacity. For the company, there’s less redundancy in that chip.

You have higher reliability requirements because you’re stacking multiple ones together. You have a logic circuitry that as you do the base side to to program these these high bandwidth memory chips that then feed all the data into the to the GPU or the the custom silicon. So that’s all a a nice driver for for the business as it relates to DRAM. I’d say the intensity of DRAM is also higher, particularly as it relates to high bandwidth memory. And then the advanced packaging as you integrate the logic device with the with the the high bandwidth memory has also been a nice driver for our business.

We talked at earnings about $850,000,000 of of opportunity in 2025, up from about 500,000,000 across the company, about 70% of that in our process control business. And so a lot of momentum both in terms of the intensity as the processing requirements have changed in terms of heterogeneous integration and what that’s doing for process control intensity, also significant share momentum as well. So I think that trend continues. It’s interesting if you look at the advanced packaging market overall, it’s $910,000,000,000 of investment today. You go back four, five years ago, was 3,000,000,000, 4 billion, so it’s grown meaningfully in support of high performance compute markets.

And as the technologies become more complex, it’s a market that has moved towards higher value solutions, solutions where we can differentiate, we can leverage a lot of what we’ve done in the front end to meet the the customer requirements there. So that is that is strong for the business. Our service business continues to operate strongly. We’ve been impacted a little bit by some of the restrictions that have happened in China that have limited access to fabs. Over the long run, our service business growth correlates pretty well with semiconductor revenue growth, but in the short run, if you lose access to a fab, it does have a near term impact.

Despite that, I think our service business still grows low double digits in 2025. So overall, if you look at just the drivers of revenue, we feel very good about the ability of the company to outperform relative to the market. We’ve had a nice trajectory over the last few years in terms of our share of WFE growing. And I think you’ll see a continuation of that as we move through 2025. And you know, service is functioning well, the P and L is operating consistent with our expectations, gross margins we guided at 63%, adjusted our 25% outlook for gross margins to in the mid-60s from 62% plus or minus reflecting some of the I think sustainable strength in the margin profile as we go forward.

And then our operating income target of incremental operating margin of 40 to 50%, we’re performing in excess of that in terms of how things lay out for ’25. So I think the company is well positioned from a share point of view. This market is moving to us, we think, in a lot of ways that we couldn’t design a better set of applications as what’s happening with high performance compute for KLA and the relevancy of of KLA. We think it benefits KLA uniquely, and we think it’s constructive as we look at the next several years of opportunity.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: Got it. Excellent. So maybe, Bren, just one or two China related questions, and then we’ll go to some of the longer term drivers of your business. So first of all, from a China perspective, I know that whether it’s KLA or your peers, you’ve all been kind of on either side of 30% or so exposure. You think that business is now predictable, right?

There’s enough visibility for the rest of the year. I realize geopolitics is a ever evolving environment, but, you know, if there is no big change to restrictions, is that still you know, is is that a fairly predictable business for you over the next several quarters?

Bren Higgins, Chief Financial Officer, KLA: Well, look. As we laid out at earnings, we talked about China for ’25 versus ’24. ’20 ’4 was over 40%. Twenty five, I think it comes down to about 30% plus or minus overall for the business. So I think what we’ve seen so far has been pretty consistent with that.

Mhmm. Given our lead times and and how we manage our slot plans around customers, particularly if it’s a new customer, know where we have flexibility, look we always wanna go after whatever business is out there and we try to be as flexible as we can. But typically with customers with that are newer to the company or don’t have aren’t as strategic let’s say as some of our leading edge customers, they tend to communicate and get into the queue and get slots solidified pretty quickly. So it as as I look at next year, I I don’t think that or or the rest of ’25. It looks, I think, fairly predictable.

If there’s an opportunity out there, I always consider different demand scenarios in terms of extra opportunity. We don’t wanna lose business because we can’t deliver. We have intrinsic lead times that are long. But I feel pretty comfortable with where the forecast is. And look, could it be 30% plus a little bit?

Could be minus a little bit? Sure. But I think it’s going to be in that neighborhood as we go through the year. Got it. Okay.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: Is there any concentration of revenue in China to any single customer? I realize the last time we spoke, you mentioned that there’s actually a very fragmented set of customers. So is there any concentration issue at all that that can impact your business?

Bren Higgins, Chief Financial Officer, KLA: Not really. As it relates to process control, process control gets invested at in in chunks as customers are working through r and d, establishing some risk production, trying to become both credible and roadmap and credible to potential customers. And so then there’s a more of a kind of lower level but more continuous level investment than a more capacity centric investment on a fab that’s ramping its first you know 10,000 wafer starts. You do have those that happen and we participate in that, but there’s a lot of business that is more somewhat just kinda consistent with the way I laid it out. You also have customers that have been more historic customers, I call them more mature customers in China, that haven’t invested much in the last few years, that are now starting to invest again.

So it’s a mix. We also have infrastructure investment that happens in China related to wafers and bare wafer capacity, but also reticle capacity. Not a lot of mass shops in China that are accessible was a choke point area where the customers in China need to buy reticles from the merchants, and if the merchants haven’t invested or don’t have the capacity, that’s been, was certainly an issue back in ’21 and ’22 when there were supply shortages. So you’re seeing some establishment of that domestic infrastructure, that’s also a driver for KLA that’s unique to KLA in that we are a high percentage of the CapEx in those operations that others may not be exposed to. Parts of WFE they’re not exposed to.

But I would say it’s really across the board, I wouldn’t call it anything excessive from an overall certain customer exposure. Got it.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: As you think about multiple quarter time frame. Given your tools are so proprietary, who services the tools if a customer is restricted?

Bren Higgins, Chief Financial Officer, KLA: It’s a great question and it is a challenge. One of the challenges is that when we’re not, we don’t have access to the customer it’s hard for us to know what the customer is doing with those tools. But it becomes very very difficult for them to do it. I’m sure that there’s some cannibalization that likely happens. There’s probably some third parties that are trying to reverse engineer and replicate certain types of parts to try to keep tools running even if it’s not running at its highest performance levels.

If you look at our service business generally it is unique in that one of the reasons why our service business has such a high contract percentage, it’s about 75% of the revenue stream, is because of the complexity of the tools. These are not single use tools, these are very custom precision instruments. They don’t have a lot of them and most of the supply chain or certainly around critical components is custom and so therefore proprietary to KLA. As a result of that, the customer wants performance, they want availability, they want matching performance across the tools, and they rely on KLA to support those systems. And a contract structure allows them to sign up to very specific requirements and allows us to size our infrastructure to support those requirements and drive as much efficiency as we can.

So it’s a very unique business and I think it continues, it grows every year. We’ve had one down year in the last twenty five years. And over time, if you look at service, our service business, if you had asked me when I became CFO in 2013, what was the percent of ASP of a service contract for a tool, would have said it’s about 4%, today it’s about 5%. If you had asked me what the lifetime of a tool was, I would have said lifetime was probably low teens, today it’s high teens. If you would have asked what percent of a tool ASP we capture in service revenue over time, I would have said 40 to 50%, today it’s 100%.

Because the tools are living longer in the field, customers are keeping them up, they’re serving markets. If you think about the spectrum of demand for semiconductors, you have a lot of these markets where semiconductor content’s growing and in industrial and automotive and Internet of things and so on. And so these tools are running for a long period of time, and so we’re able to capture a lot more opportunity off of them, and then have those dynamics around the complexity of the system, and the challenge for third parties or customers to be able to support the systems. That really makes it a nice kind of captive business for KLA over time that generates what we believe are accretive margins and grows frankly over time faster than the equipment business. So it’s a special part of KLA and I think it’s gonna be, continue to be

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: a strong contributor moving forward. Right. I’m glad you brought up services because you know your services business is different than the services, right, quote unquote services business that we hear from some of your US peers who also include, you know, 200 millimeter tools or might include like refurbs and spares. So what’s different about your services business that gives you the ability to grow double digit, right? So it is much less cyclical, right, than anybody else’s services business.

Bren Higgins, Chief Financial Officer, KLA: Well, there’s a few things. I mean first of all you’re right, it doesn’t include anything that’s systems. So a systems upgrade would show up in our systems revenue. 200 millimeter or older system shows up in systems revenue. It’s classic service.

You know, what our customers effectively are buying, they’re not necessarily buying just break and fix, we do that. But what they’re buying is a certain level of performance out of the system over time because you don’t want it to degrade over time. It’s gotta match the rest of their install base in terms of overall. And then the availability, we commit to very high levels of availability on these systems. And, you know, they they we we have the ability, I think, to customize these offerings to allow us to meet whatever requirements are, deliver to those requirements, but then have good visibility to it so we can structure our business underneath.

Very few consumables in our products. One thing on the process tool, and we have process businesses, is that there is a supply chain for consumable parts. And so you know, customers can get access, third parties can get access. And so there as a result of that, you you have more billable business, and you have parts of the business that that are accessible from somebody other than than the suppliers of the business. So it behaves very uniquely relative to the process tools.

I think because of that, obviously that influences the top line growth rate opportunity. And so most of what we sell is KLA, even in our billable service, customers mind the parts from us. They’re paying for the labor in a billable structure. So I think for all those reasons it drives this very consistent growth rate that’s at the level that we talked about. And then the lifetime of the tools and I think the higher value opportunities of the newer systems given the complexity of them is a nice tailwind overall.

I

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: had one or two questions on overall WFE. So this year, right, most people who have kind of guided WFE have guided to kind of mid single digit growth. But your trend line is double digit, right? Few others of your peers’ trend line is double digit. So is it mid single digit is a conservative number?

Or is that some are declining a lot? Or what is the right way to kind of align, right, your double digit growth versus market itself that may not be growing as much?

Bren Higgins, Chief Financial Officer, KLA: Well, have a lot more visibility obviously to my business than everybody else’s. And I think, you know, we what we do every quarter is we assess what the market is, what our customers are saying, how peers are performing as we go build our forecast. So we’ll provide an update as as we move into the the June and the earnings cycle. If I think after people guide, we’ll get decent visibility in the second half. There’s also the packaging dynamic and and how that translates back into WFE.

I you know, historically, I think a lot of companies certainly KLA included, we never really identified advanced packaging as part of the overall market. It was a few billion dollars on what was a $90,000,000,000 plus number. And so it was kind of in the margin for error as you thought about trying to provide a directional forecast for WFE. As it’s bigger now, it’s a bigger part of of of the overall opportunity. And so I think when you look at our WFE number, we talked about mid single digit growth.

If you add also advanced packaging, then that’s also additional served market opportunity. And that could be a factor in in some of this, you know, where the number is relative to where people are performing. Now that it’s so significant, I think continues to be significant over time given what we expect to see happen in terms of the composition of semiconductor revenue over the next several years is I think it’s gotta go into that baseline number in terms of what the overall market. It’s not just WFE anymore, it’s WFE plus advanced packaging. And you know, the WFE or the advanced packaging work be 10 to 15, maybe even higher, 20% if it’s growing faster of the overall served market.

So I think that could be a factor in all of it, but but we’ll provide an update and would expect that that in our next investor day as we think about a long term plan, we’ll we’ll dig into this a little bit more to provide this additional context because it’s not just traditional WFE as the opportunity for a company like KLA. We also have this, what is 9 to $10,000,000,000 today, growing we think over time at a growth rate faster than core WFE. So it’s certainly a new opportunity that

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: I think we want to raise the awareness to or from investors. You know, historically, WFE in China has been or WFE intensity in China has been a lot higher than overall WFE. So as China starts getting to be a smaller part of the industry because of restrictions and other things, what does that do to long term WFE intensity for the industry?

Bren Higgins, Chief Financial Officer, KLA: No, it’s a good question. And you’ve had some inefficiency from the fact that you’ve had a number of projects spread out, small number of wafer starts, and so it’s pushed. I think the efficiency of that spend has been fairly low. Now if you look at the leading edge, the efficiency of the investment at the leading edge has also been very very high, right? So I think if you go and look at what’s happened with WFE intensity over time, from about 2013, ’20 ’14 timeframe, we’ve seen the intensity of WFE rise.

Right? For a long time it was coming down, wafer transitions, consolidation in the industry, all this drove it down. Since about that time we’ve seen it rise. If you and if you look at what’s happening in the industry today, it’s not clear that there’s anything that’s coming from a tech. There’s no more wafer transitions or coming from a technical point of view that’s gonna drive intensity down.

I think there’s a lot of focus on customers to keep it from growing faster. And if you look at the way we model our business and think about it over the long run is that we assume a pretty efficient market. Right? We assume that WFE is gonna grow a little bit faster than semi revenue. So semi revenue is growing seven to 8%.

We would expect WFE to grow a little bit faster than that. We think logic foundry WFE is growing faster. That’s more friendly to process control, so that means process control should grow faster than than core WFE. KLA’s position in process control and in markets we think that will inflect, will drive our share opportunities plus some other markets that we’re in that we think our share share opportunities for us should allow KLA to to grow faster than that overall. So that’s how we lay out the overall view of the market and how we size the company because our view is is that look it’s important for us to size the company, size our investments based on an expectation of the market.

If it turns out that there’s higher levels of inefficiency over time in the market either driven by regional investment, more competitive dynamics of leading edge, or more strategic investment that’s happening in parts of the legacy market, although it’s hard to understand how that continues at the rate we’ve seen because how much legacy capacity could you add. But if that happens, that’s in my view upside the model, and I think we’ve proven over time that KLA, if the opportunity is there, we know how to ramp our supply chain, ramp our operations and capacity to take advantage of it. So that’s generally how we see it over time, and I think when you look at that and look at what that translate to in terms of semi revenue and WFE, you know, you go out several years, add in packaging, we think it’s a pretty compelling story relative to where the company is currently operating today.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: I see. One near term question, Brent. You have kind of given a flattish profile for the back half of the year. So what are the pluses and minuses from the different end markets, and what could be potential for upside in that part of the year?

Bren Higgins, Chief Financial Officer, KLA: Yeah, so it was more of soft guidance around the second half that we see the business generally operating in and around this $3,000,000,000 level we guided for the June at 3.075. You know, I don’t know if I’m good enough to say it’s exactly around that number. We have integers that are, you know, 20 to $30,000,000 on some of our systems. But in general, it was a statement to say, hey. Look.

The the dynamics that are driving the market today are more or less leading the company at this level. As you look at 2026 and you start to say, okay, well, what drives growth from from 3,000,000,000 for KLA or drives growth from the industry? I think we continue to see significant investment in the leading edge. I think there could be more competitive investment at the leading edge. Not expecting a lot of growth out of China, not expecting growth out of legacy markets.

I would expect to see DRAM continue, flash probably at very low levels, invest a little bit more. I think what would drive WFE to be stronger than kind of a mid single digit kind of view of growth into next year would be some strength in some of the markets that consume a lot of semiconductors replenishment cycles and PC markets, phones, things that are consumer centric, AI at the edge and what that means in terms of replenishment or replacement cycles on some of these markets. They don’t need a lot of growth but they consume a lot of semiconductors so it’s an important contributor over time. The one market that is really strong right now is high performance compute. The rest of the markets are kind of So I think getting or seeing some strength there would be the driver of upside as we move into ’26.

When that happens, who knows, and hopefully while we haven’t seen any change in customer profiles, I know everybody’s watching to see if anything changes from an overall demand point of view, given some of the geopolitical dynamics that we’re all facing today. So far, our customers are committed to their plans and nothing’s changed, but I know everybody’s kind of, you know, at least looking or, you know, cautious about what they might see. So so we’ll see how that plays out.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: Go ahead. And if I had to put you on the spot, if let’s say there is no change in the restrictions on on China, right, I mean, who knows what what the situation is, Is China, WFE, up, down, or flat next year?

Bren Higgins, Chief Financial Officer, KLA: At least in terms of my planning, I I think you’re you’re already starting to see this normalization. You’ve even heard it from certain customers in China about some consolidation efforts. Most of the investment’s been in the legacy markets is I expected that we would see it normalize over time. It was at elevated levels for some clear reasons. Funding provided new fabs, capacity availability in ’23 and ’24 where frankly if I think people had capacity a lot of some of that business would have shipped in ’21 and ’22.

So it cushioned what would have been a more meaningful downturn certainly in 2023. But over time, I think it it you know, that the percent of business declines, you know, down for at least for KLA down somewhere in the, you know, 20% range or even thinking about overall legacy, maybe 25%, you know, including what’s in China, but what’s what’s also happening in other parts of the legacy market. So that’s in general how we’re thinking about it over time is that it kind of moves down from where it is today at 30 down into that range over the next few years. So I think like we said earlier, we see right now looks pretty consistent in terms of our plans for this year. And I’m not relying in in terms of my commentary earlier on on meaningful growth in China to kind of enable a stronger growth here in WFE in ’26.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: I see. You know, one question that comes up is that KLA benefits a lot in kind of the upfront, you know, validation, you know, r and d. But then as we move to high value volume manufacturing, then some of your peers tend to benefit more. So let’s say if, you know, n two, you know, ramps next year, then is it possible that your share can can shift down for some time until they start, you know, investing in 18 or 14, right, angstrom nodes?

Bren Higgins, Chief Financial Officer, KLA: So historically and a lot of it had to do with the design start environment. A lot of it also had to do with the adoption level of the previous generation node. So if you have limited design starts and, you know, customers, you know, they do their R and D work, they introduce volume, they ramp the fab the first, you know, 40 or 50,000 wafer starts, and then they get to a place of stability, then you’re right. Historically, you’d see focus shift to more productivity driven, investment. So, you you know, process control tools will go from, you know, higher end tools to more capacity centric tools.

You’d also have this dynamic that if the previous generation nodes weren’t adopted by follow on designs that follow the leaders is that there were opportunities to take some of that capacity and and leverage it, reuse it in the in the current node. So those were factors that influenced it and certainly influenced it pretty dramatically where the road map for the Moore’s Law road map was slower, driven because of of the delays in in scaling that came from the push out of EUV. One of the things that’s about the two nanometer node right now is, first of all, we talked about some of the drivers as it relates to new architecture. You still have while you don’t have, you know, more or meaningfully more EUV layers, the the EUV layers are more complex layers. There’s still desires to shrink the pitch on the reticles to shrink the feature sizes it into.

So you have good leading edge design rule drivers. You have a design start environment that’s rich. You have an anticipation of products starting to move to some of these higher value products. You have the three nanometer node, the five nanometer node very well adopted right now. So the reuse factor is next to nothing.

And the anticipation of design starts for two nanometer are likely higher over the first four to five years of the node than the previous high, which was seven nanometer, previous high was 28 nanometer. There’s a lot of unique dynamics around expectations for two nanometer that I think sustain our business moving forward. You have to remember that lots of designs and lots of process iterations drive process control in a different way because customers, each design is different. Each design brings different defect mechanisms and systematic defectivity issues. So, and then you had different process frames.

They test design rules in different ways. So it does create, I think, opportunities. And we’ve seen, you know, our customer manage very, very closely. You don’t wanna start too many. You’ve gotta deliver yielded die at the end.

You’ve gotta deliver to a market window. So the process control intensity, even in production, we’ve seen a step up in it. Then you have what’s gonna happen with the next node and that investment will start at some point, even at, you know, kind of r and d and risk production level. So you’ll have that starting, I would expect sometime in, you know, sometime in ’26 also. And so I would my expectations for leading edge investment are higher, I think, you know, from the leader, but but potentially from from others that that invest more next year than than they’ve invested this year.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: I see. Are you getting those signals that the strength could be broadening out or? I’m optimistic. Okay. That’s a good thing.

On gross margins, so low 60s, I thought earlier during our chat you mentioned mid 60s. Did I catch that right?

Bren Higgins, Chief Financial Officer, KLA: Well, look, we guided 63%. If you go back to the 2026 model we presented at our Investor Day in 2022, it was 63% plus, right? So you could argue that, you know, right now the company’s in line with my ’26 target more or less at roughly 2,000,000,000 less in revenue. So I feel pretty good about the sustainability both in terms of the product mix dynamics. I think we’re shipping more the latest version of products.

I mean one reason why KLA has not across the portfolio that we invest the way we do is we like to introduce products at a cadence and new capability at a cadence that’s much faster than competitors. Reason for it is you a couple reasons. Number one is you always want new capability You try to stay a moving target for competitors, but it also allows you to deal with some of the cost dynamics relative to price and make whatever adjustments you need to make in that. And for a couple of years we were selling more legacy equipment, older versions of products, and there was inflation across the entire cost structure that in some ways we absorbed that I think we’re now able to work our way through and recapture as we move forward.

What was a headwind is now more of a tailwind. So our EPC business has underperformed. We had flat panel. We don’t have flat panel anymore. That was a margin dilutive business.

So we’re out of that. Parts of that business are still somewhat sluggish. Frankly, look at be happy with another couple hundred million dollars of of PCB revenue, and if it impacted the gross margins a little bit, fine. My general view is we’re we’re optimizing for gross margin dollars. But in terms of the overall percent and how we how we model the business, I think those factors are positive ones.

And I think in packaging, which has been somewhat dilutive for for us from a margin point of view, as that as we move forward, that market will need more capability. But we’ve also introduced new capability that we’ve been able to to move the margin profile up in that part of the business. And so while it’s modestly below corporate averages, I think over time it starts to become a tailwind as well. So I I feel pretty good about the trajectory where we are inclusive of our current view of the tariff environment, which I’ve talked about publicly a fair amount over the last few months. As we look at the next few years, we run the business given the mix of systems and service with a 65% incremental gross margin on revenue growth, plus or minus.

So over 63, there’s not a lot of room, but there’s room. And so I think as we move forward, a lot of these factors are sustainable.

Vivek Arya, Analyst, BofA Semiconductor Semiconductor Equipment Research team: Got it. Excellent. With that, Brent, thank you so much. Really appreciate your time. Thanks

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