Lam Analysis (LRCX) This autumn 2023 Earnings Name Transcript

Lam Analysis (LRCX 2.14%)
This autumn 2023 Earnings Name
Jan 24, 2024, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Good afternoon, and welcome to the Lam Analysis Company December 2023 quarterly earnings convention name. All members will likely be in listen-only mode. [Operator instructions] After at the moment’s presentation, there will likely be a chance to ask questions. [Operator instructions] Please notice this occasion is being recorded.

I’d now like to show the convention over to Ram Ganesh, head of investor relations. Please go forward.

Ram Ganesh — Head of Investor Relations

Thanks, and good afternoon, everybody. Welcome to the Lam Analysis quarterly earnings convention name. With me at the moment are Tim Archer, president and CEO; and Doug Bettinger, government VP and chief monetary officer. Throughout at the moment’s name, we’ll share our overview of the enterprise setting, and we’ll evaluation our monetary outcomes for the December 2023 quarter and our outlook for the March 2024 quarter.

The press launch detailing our monetary outcomes was distributed a bit of after 1:00 p.m. Pacific Time. The discharge can be discovered on the IR part of the corporate’s web site together with the presentation slides that accompany at the moment’s name. Right now’s presentation and Q&A embrace forward-looking statements which might be topic to dangers and uncertainties mirrored within the threat components disclosed in our SEC public filings.

Please see accompanying slides within the presentation for added data. Right now’s dialogue of our monetary outcomes will likely be introduced on a non-GAAP monetary foundation except in any other case specified. An in depth reconciliation between GAAP and non-GAAP outcomes might be discovered within the accompanying slides within the presentation. This name is scheduled to final till 3:00 p.m.

Pacific Time. A replay of this name will likely be made accessible later this afternoon on our web site. And with that, I am going to hand the decision over to Tim.

Tim Archer — President and Chief Government Officer

Thanks, Ram, and welcome, everybody. Lam delivered sturdy efficiency within the December quarter. Revenues, gross margin, working margin, and EPS all above the midpoint of our guided ranges. Our outcomes for December closed out a calendar 12 months 2023, through which Lam executed nicely amid a decline in total wafer fabrication gear spending.

In comparison with the prior-year cycle trough in calendar 2019, we achieved a close to doubling of EPS. There are just a few the reason why Lam has developed stronger cycle to cycle. First, we’ve got improved our positioning within the foundry, logic, and specialty know-how segments by means of sustained investments in innovation and new merchandise. Consequently, we’ve got grown our complete non-memory income share, and we proceed to achieve momentum at key know-how inflections.

Second, we’ve got delivered great progress in our buyer help enterprise group. Lam ended calendar 2023 with roughly 90,000 chambers within the subject, an put in base virtually 50% bigger than within the earlier cycle. CSBG income has grown by greater than 80% from 2019 ranges. And eventually, we’ve got additional improved our capacity to handle prices and drive operational effectivity by means of cycles, delivering working margins in 2023 that had been practically 2.5 factors greater than the prior trough.

Turning to WFE. We estimate that 2023 spending ended within the low $80 billion vary. That is up barely from our prior view, pushed by continued energy in home China spending predominantly in gear segments the place we don’t take part. Total, reminiscence WFE was down practically 40% 12 months on 12 months, led by cuts in NAND spending of greater than 75%.

Non-memory WFE decreased within the mid-single digits vary with mature node progress in China, partially offsetting declines in modern node spending in the remainder of the world. As we enter 2024, the enterprise setting stays muted. Nonetheless, we count on a modest restoration in reminiscence spending to drive a stronger exit to the 12 months. Our early view of WFE spending for calendar 2024 is within the mid- to excessive $80 billion vary.

Progress in DRAM will likely be pushed by capability additions for high-bandwidth reminiscence in addition to node conversions. NAND spending will increase will largely come from know-how upgrades. We see foundry logic spend rising in 2024 with greater modern funding, offset partially by declines in mature node funding exterior of China. Total, we consider home China spending will likely be steady in 2024.

Long term, the setup for WFE funding is strong. With semiconductor revenues extensively anticipated to achieve $1 trillion across the finish of the last decade and gadget manufacturing complexity persevering with to rise, we consider WFE spending might want to roughly double from at the moment’s ranges. Lam’s served markets of etch and deposition ought to outpace progress in WFE total. Because of this, we’ve got been executing a collection of strategic actions to finest place the corporate for the expansion alternative forward.

Importantly, we’ve got remained dedicated to those initiatives regardless of the difficult spending setting over the previous a number of quarters. First is our dedication to R&D, together with deliberate spending will increase in calendar 12 months 2024 to increase our differentiation in services and products focused at next-generation semiconductor gadget inflections. This subsequent period in semiconductors will likely be outlined by the broad transfer towards 3D architectures and superior packaging to resolve scaling challenges. We consider it will, in flip, drive a rise in etch and deposition depth over the long run.

Our focus is on a number of billion-dollar SAM growth alternatives throughout reminiscence and foundry logic. We’ve profiled our advances in gate-all-around, bottom energy supply, superior packaging, and dry EUV patterning over the previous a number of quarters, and our options are persevering with to achieve traction with clients. Within the December quarter, we secured extra superior packaging wins for high-bandwidth reminiscence, which is essential for enabling superior AI servers. Our SABRE 3D instruments, best-in-class plating uniformity together with our capacity to exhibit an total value of possession benefit made Lam the clear alternative over a big competitor.

In 2024, we count on our HBM-related DRAM and packaging shipments to greater than triple 12 months on 12 months and outpace WFE progress on this phase by a major margin. The specialty know-how markets are additionally yielding a various set of recent alternatives for Lam. For example, we’ve got lately delivered pulse laser deposition know-how to clients focusing on high-volume manufacturing of MEMS and next-generation high-frequency gadgets. We accelerated our entry into this market by integrating know-how we obtained by way of small acquisition onto a production-proven Lam platform.

In comparison with competing deposition strategies, Lam resolution permits extra extremely doped scandium aluminum nitride movies, which delivered the piezoelectric efficiency and value our clients require. The second space of focus for Lam has been our funding in services near our clients. By establishing course of growth capabilities close to our clients’ R&D fabs, we’re maximizing collaboration and accelerating time to options. We’ve additionally made progress ramping provide chain and manufacturing operations inside our buyer ecosystems.

These in-region capabilities improve our responsiveness and resilience for purchasers and create vital financial worth for Lam as we leverage the advantages of world flexibility. Our new manufacturing facility in Malaysia is poised to totally scale within the coming WFE upturn, offering us the potential to almost triple the share income contribution from our lower-cost manufacturing areas versus just a few years in the past. And eventually, Lam is targeting reengineering our enterprise processing techniques to drive operational excellence at higher scale. Investments in digital capabilities like digital twinning, superior simulation, and AI are serving to us to speed up downside fixing, and we’re constructing gear intelligence capabilities and in-fab service automation into our most superior product street maps.

As we full our reengineering efforts, we’re additionally intent on reaching organizational agility. On this regard, we’re saying a small workforce discount predominantly on the government degree to align our sources with our execution priorities and drive effectivity and pace of decision-making. In calendar 2023, Lam delivered stable outcomes whereas investing to construct sturdy capabilities for the longer term. Wanting ahead, I’m assured that our strategic international infrastructure and differentiated know-how portfolio present Lam with the instruments we have to capitalize on the strong semiconductor progress anticipated within the years forward.

Thanks, and now right here is Doug.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Nice. Thanks, Tim. Good afternoon, everybody, and thanks for becoming a member of our name at the moment throughout what I do know is a busy earnings season. We delivered sturdy monetary leads to calendar 12 months 2023.

Our income got here in at $14.3 billion and diluted earnings per share at $27.33. We’re happy with the corporate’s execution throughout the 12 months the place the reminiscence WFE combine reached historic lows. Let us take a look at the small print of our December quarter outcomes. Income for the December quarter was $3.76 billion, which was up 8% from the prior quarter and down 29% from a 12 months in the past.

Our deferred income steadiness on the finish of the quarter was $1.93 billion, which was a rise of $238 million from the September quarter, which was primarily tied to progress in buyer superior funds. We proceed to have a better deferred income steadiness versus historic ranges given these customer-advanced funds. From a phase perspective, December quarter, techniques income in reminiscence was 48%, which is a rise from the prior-quarter degree of 38%. The expansion within the reminiscence phase was led by DRAM, which was at document ranges on a greenback foundation, coming in at 31% of techniques income, in contrast with 23% within the September quarter.

DRAM is benefiting from progress in high-bandwidth reminiscence capability and the transfer to DDR5, which is required to deal with AI-related workloads, and it is also benefiting from shipments to China. As we have famous in prior quarters, nonvolatile reminiscence WFE was at historic lows on a mixture foundation in 2023. For the December quarter, this phase represented 17% of our techniques income, which was up a bit of bit from 15% within the prior quarter. The slight progress was predominantly associated to investments in sure know-how initiatives.

NAND clients have aggressively decreased capability all year long to deliver stock ranges down. The foundry phase represented 38% of our techniques income, a bit of greater than the share focus within the September quarter of 36%. Progress was pushed by new fab shipments in varied areas throughout a number of course of nodes. The logic and different phase was 14% of our techniques income within the December quarter, which was down from the prior quarter degree of 26%.

The decline was pushed by common mature node softness in addition to the timing of buyer initiatives. Total, within the foundry and logic phase, we have carried out nicely, delivering on the share good points that we have beforehand been discussing with you. Now I am going to focus on the regional composition of our complete income. The China area got here in at 40%, which was down from 48% within the prior quarter.

Most of our China income within the final two quarters was from home Chinese language clients, and we count on spending from this area to be steady total in 2024. China as a % of our income is predicted to remain comparatively excessive within the March quarter, however it doubtless tendencies decrease because the 12 months progresses. Our subsequent largest geographic focus was Korea at 19% of income within the December quarter versus 16% within the September quarter. And eventually, Japan and Taiwan rounded out the remaining of our prime 4 areas.

The shopper help enterprise group generated income within the December quarter of practically $1.5 billion, up 2% from the September quarter and 16% decrease than the December quarter in calendar 12 months 2022. Total, the enterprise was regular, and we proceed to see our reminiscence clients working the fabs at very low utilization charges. Given the energy of the put in base items, we’ve got a robust basis for progress when know-how conversions and utilization charges resume rising. Spares adopted by the Reliant product line proceed to be the 2 largest elements of CSBG.

Turning to the gross margin efficiency. The December quarter got here in at 47.6%, which is above the midpoint of steerage and customarily according to the September quarter degree, which was 47.9%. We have improved components of our value construction throughout the 12 months and delivered on our dedication to enhance gross margin from the 2023 March quarter degree by roughly 1 share level as we exited calendar 12 months 2023 from these operational enhancements. December quarter working bills had been $662 million, up from the prior quarter quantity of $622 million.

R&D as a % of spending was greater versus the September quarter, coming in at over 69% of complete bills. The elevated spending displays our ongoing concentrate on extending our product and know-how differentiation throughout these essential inflections that Tim talked about earlier. We are going to proceed to develop investments throughout a number of market segments to help the long-term strategic goals for ongoing firm outperformance. Working margin for the present quarter was 30%, according to September quarter degree of 30.1% and above the midpoint of our steerage primarily due to a stronger gross margin efficiency.

Our non-GAAP tax fee for the quarter was 12.3%, usually according to expectations. Wanting into calendar 2024, we consider the tax fee will likely be within the low to mid-teens with the traditional fluctuations quarter by quarter. Different earnings expense for the December quarter got here in at $5 million in earnings in contrast with $7 million in earnings within the September quarter. The slight fluctuation in OI&E was primarily on account of variations in alternate charges.

OI&E will proceed to be topic to market-related fluctuations that might trigger some degree of volatility every quarter. On the capital return aspect, we allotted roughly $640 million to open market share repurchases, and we paid $264 million in dividends within the December quarter. For the 2023 calendar 12 months, we returned 79% of our free money circulate, totaling $3.8 billion, which was largely in keeping with our long-term capital return plans of 75% to 100%. December quarter diluted earnings per share was $7.52 over the midpoint of our steerage.

Diluted share rely rounded all the way down to 132 million shares on monitor with our expectations and down from the September quarter. Throughout 2023, we repurchased practically 5 million shares by means of our share buyback program. And I’d simply point out, we’ve got $2.1 billion remaining on our board-authorized share repurchase plan. Let me flip to the steadiness sheet.

Our money and short-term investments on the finish of the December quarter totaled $5.6 billion, up from $5.2 billion within the September quarter. The rise was largely on account of collections, offset by money allotted to share repurchases, dividend funds, and capital expenditures. Total, 2023 was a document 12 months for money flows from operations coming in at $5.3 billion. Days gross sales excellent was 66 days within the December quarter, which was a lower from 73 days within the September quarter.

Because of our operational focus and execution, I am happy to report that stock turns improved to 1.8 occasions from the prior quarter degree of 1.5. We are going to proceed to work on bringing stock down all through calendar 2024. Our noncash bills for the December quarter included roughly $70 million for fairness compensation, $78 million for depreciation, and $13 million for amortization. Capital expenditures for the December quarter had been $115 million, up $38 million from the September quarter.

Spending was primarily centered on product growth actions and lab expansions in the US and Asia, supporting our international lab funding technique. We ended the December quarter with roughly 17,200 common full-time workers, which was flat with the prior quarter. Let’s now flip to our non-GAAP steerage for the March 2024 quarter. We’re anticipating income of $3.7 billion, plus or minus $300 million.

Gross margin of 48%, plus or minus 1 share level. This gross margin steerage is reflective of continued favorable buyer combine. I do count on this favorable combine to mitigate considerably because the 12 months progresses. Working margins of 29.5%, plus or minus 1 share level.

I’d once more spotlight that the March 2024 quarter could have greater spending because it contains an additional week within the quarter, which happens each a number of years. It is a 14-week quarter. And I may also remind you we will likely be rising R&D spending this 12 months. And eventually, we’re anticipating earnings per share of $7.25, plus or minus $0.75 primarily based on a share rely of roughly 132 million shares.

We proceed to be targeted on enhancing our enterprise operations to optimize effectivity and effectiveness as WFE progress happens. Our profitability metrics mirror the progress we made throughout calendar 12 months 2023, with enterprise realignment and transformational actions nicely underway. We’ll see these actions proceed within the first half of calendar 12 months 2024. Together with the price incurred for these enchancment actions and headcount reductions that we noticed in calendar 2023, I now count on we’ll spend in complete $300 million for these actions, which can proceed to be reported in our non-GAAP changes.

I had beforehand informed you we’d spend $250 million over 12 months. It is now $50 million greater and 6 months longer. So let me conclude. Over many semiconductor cycles, Lam has established a confirmed monitor document of efficiently managing our enterprise.

With the actions we have taken over the course of the final a number of quarters, we count on to strengthen our operations and know-how management and additional improve our profitability profile. When income scales into the subsequent upturn, Lam will likely be stronger, higher positioned, and extra environment friendly. Operator, that concludes our ready remarks. Tim and I’d now prefer to open up the decision for questions.

Questions & Solutions:

Operator

We are going to now start the question-and-answer session. [Operator instructions] Our first query at the moment is from Tim Arcuri from UBS. Please go forward.

Tim Arcuri — UBS — Analyst

Thanks rather a lot. I suppose my first query for you, Tim, is I puzzled in case you may form of translate. Clearly, you heard your massive litho peer that reported at the moment that had these large orders and it appears to be like like a few billion {dollars} in EUV orders for DRAM. In order that form of interprets to an additional $9 billion to $10 billion, one thing like that.

So it appears principally for shipments throughout this 12 months and even into subsequent 12 months for them. So like perhaps you have not seen that but. However are you able to discuss what that tells you about the way forward for that phase? And I do know you assume it should be up, however it looks like it may very well be up rather a lot. And perhaps any change within the planning outlook or the discussions that you simply’re having together with your DRAM clients?

Tim Archer — President and Chief Government Officer

Certain. Thanks, Tim. And clearly, WFE is a difficult factor to forecast as a result of usually, we’ve got an excellent view of sure segments of the market. And we attempt to give an total view of WFE, and we try this primarily based on listening to friends, speaking to clients, and making our personal assessments.

Yeah, typically we get it unsuitable. And I suppose we’re at all times in a interval of adjusting that. I feel although — I do not assume there’s something on the market that’s fully inconsistent with what we have stated. We have stated WFE is up this 12 months, modestly recovering due to reminiscence.

We would see a stronger exit to the 12 months. And I feel to the magnitude, I feel we’re simply going to maintain watching it and having these conversations with clients. On this interval, lead occasions of kit and the framework through which sure items of kit have to be ordered and introduced into fabs can differ gear provider to gear provider, and perhaps there’s one thing at play there. However I feel it most likely additional reinforces our bullishness that reminiscence has been at a traditionally low mixture of WFE.

We stated that reminiscence spending throughout each DRAM and NAND. We felt was at unsustainable ranges. We stated that on just about each name final 12 months. I feel that it isn’t a shock that, that finally corrects itself.

What I’d level out is that we do not spend an incredible period of time attempting to get the timing precisely proper. In my script, I talked rather a lot about strategic actions, which play out through the years and, in reality, catch the DRAM inflections which might be coming now. The energy we’ve got in high-bandwidth reminiscence, the positions we’ve got in functions in DDR5 and past. These had been established by us seeing DRAM alternatives years in the past.

And I feel we’re persevering with to report an increasing number of progress in that phase. And I feel we’ll simply proceed to do this. So we are likely to take a long-term view of know-how and spending patterns.

Doug Bettinger — Government Vice President, Chief Monetary Officer

And Tim, it is Doug. I am going to simply remind you one thing that I do know you realize very nicely these lead occasions are usually for much longer than ours are in etch and deposition. And also you by no means purchase litho with out finally shopping for the method gear that goes together with it. So in the event that they’re seeing one thing, we’ll see it, too.

Tim Arcuri — UBS — Analyst

Completely, Doug. Yeah, for certain. So I suppose for you, Doug, tremendous fast. So there’s type of plenty of transferring elements, I do know occurring in gross margin.

I do know that the combo helps you. And I do know you are most likely getting some tailwinds from some value aid and issues like that. So what’s the fitting normalized margin? I do know perhaps 48% will not be the fitting normalized quantity, however is it like is the combo serving to you by 50 foundation factors, and that is what kind of goes away? Are you able to form of assist us there? Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yeah. Tim, I am going to remind you of what I stated final quarter as a result of it is nonetheless type of the identical factor. The shopper combine is benefiting us once more within the March quarter information, perhaps even a bit of bit greater than it did final quarter. I took you again to that June quarter of final 12 months earlier than we had such a good geographic combine and that largely is what’s driving the shopper combine.

We had been round 46% gross margin, 45.7%, I feel, if I bear in mind the June quarter particularly. That is not a foul place to type of begin when combine normalizes again to perhaps extra regular ranges. So give it some thought that approach. Someplace in between there and the place we’re right here.

These operational enhancements that we have been speaking about are actual issues and as progress resumes and we all know progress will resume at some juncture, we should always profit from repositioning the corporate to those lower-cost areas. In order that’s nonetheless on the approaching line. however it can require some degree of progress within the enterprise.

Tim Arcuri — UBS — Analyst

Thanks, Doug.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Tim.

Operator

The subsequent query is from Harlan Sur with J.P. Morgan. Please go forward.

Harlan Sur — JPMorgan Chase and Firm — Analyst

Good afternoon. Thanks for taking my query Once more, going again to your massive litho peer that reported this morning, proper? They referred to as out seeing a rise in buyer utilization of their litho instruments, each in reminiscence and in foundry and logic, showing that that is the early sign of a constructive flip in cyclical dynamics. I do know you guys are additionally monitoring real-time utilization, exercise charges of your clients. I do know they’re at very low ranges, however are you guys beginning to see some pickup in utilization charges throughout your clients? And is that additionally perhaps providing you with additional confidence in your modest progress outlook for WFE this 12 months?

Tim Archer — President and Chief Government Officer

Yeah. We have stated previously that we — clearly, we monitor that fairly intently. I feel you have heard our clients discuss growing utilization. We have actually seen and heard from our clients speak of strengthening in pricing in these markets.

How we stated it might have an effect on us? I imply, in markets like NAND, with a lot utilization taken offline, we’d see some uptick in our spares enterprise. We see that begin to circulate by means of upgrades. And as I discussed in my script, we anticipate {that a} massive portion of the uptick in reminiscence spending this 12 months will likely be coming by means of know-how upgrades the place — the put in base is Lam gear, and due to this fact, plenty of the good thing about that WFE spending will circulate to Lam as we do these know-how upgrades. The opposite aspect of the spending will likely be coming from the extra gear that should get added to allow issues like excessive bandwidth reminiscence.

And we have talked about the truth that in excessive bandwidth reminiscence, Lam has a 100% market share of the essential applied sciences wanted for stacking the DRAM. So I am going to let our clients converse to what their utilizations are however what I might say is that every one indicators are pointing to the reminiscence market starting to come back out of its fairly darn close to historic downturn over the past couple of years. And so that is what we’re for this 12 months.

Harlan Sur — JPMorgan Chase and Firm — Analyst

That is very useful. And then you definitely talked about this, I imply, your CSBG enterprise has grown at a 17% CAGR since 2019, proper? That is considerably quicker than I feel it was a ten% to 11% CAGR goal that you simply guys put out at your final Analyst Day. I do know it has been weak over the previous few quarters, simply given among the provide aspect self-discipline of your clients, decrease utilizations, slowing tech migration. However assuming that you will notice the pickup in exercise someday this 12 months.

You mix that with a robust continued progress within the put in base enterprise, variety of chambers continues to develop at a low double-digit progress fee. Like how ought to we take into consideration the expansion profile, places and takes of CSBG this 12 months and going ahead?

Tim Archer — President and Chief Government Officer

Yeah, I do not know that we’ll put a quantity on the expansion fee for CSBG at this level. However clearly, that enterprise has been closely impacted by the utilization cuts that occurred inside our buyer fabs. And we noticed that each in spares in addition to a curtailment of lots of the know-how upgrades that sometimes would simply happen 12 months in, 12 months out. And in order that did have an effect on CSBG revenues.

I feel that going ahead, I talked about how a lot bigger the put in base is now. That is a a lot bigger put in base that due to the delay in know-how upgrades, there’s pent-up demand there. I imply these instruments have to be upgraded to be working on the newest and most effective and best know-how node for our clients. And so I do not know the precise timing, however I do know that put in base will likely be upgraded and can really generate numerous income for Lam going ahead.

Doug Bettinger — Government Vice President, Chief Monetary Officer

And Harlan, perhaps identical to to remind you, there’s 4 elements in CSBG, spare service upgrades, all of which can profit from what Tim was describing. You even have the Reliant product line in there, which has simply completed superb within the final 12 months. That may ebb and circulate to a sure extent with extra mature nodes, specialty node WFE. So do not lose sight of that one.

There may be a barely totally different dynamic with the Reliant product line.

Harlan Sur — JPMorgan Chase and Firm — Analyst

Good. Thanks very a lot.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Harlan.

Operator

The subsequent query is from Atif Malik with Citi. Please go forward.

Atif Malik — Citi — Analyst

Hello. Thanks for taking my query. First one, Tim, traditionally, you guys have benefited disproportionately when the NAND spending occurs. For those who had been to consider your place competitively when the NAND spending recovers, I perceive this 12 months, there’s extra know-how upgrades.

However how ought to we take into consideration your place popping out of this NAND downturn competitively, notably on extra layers than the entire etch course of?

Tim Archer — President and Chief Government Officer

Yeah. I feel it is a good query, and that was what I identified. I imply I feel what we’re within the close to time period in these first levels of restoration is clients are very value delicate. And one of the best ways to attain that subsequent know-how node is by upgrading the gear that you’ve got in place.

And so Lam, we spend an incredible period of time investing in applied sciences that allow the improve and extension of our gear, and that is actually of excessive worth to our clients. I feel that may really go on for fairly a very long time. We’ve about 6,500 chambers of excessive facet ratio etch, as an illustration, within the NAND market. That creates plenty of next-generation know-how by means of these upgrades.

And past that, the training you get from now working these upgraded chambers at that subsequent know-how node, tends to seed the entire concepts and understanding of the challenges that have to be solved on the combine node. And I feel that is why the put in base positions and incumbent positions are usually very troublesome to interrupt on this business. And we have tried to interrupt into others. And so we all know that very nicely.

What Lam has completed extraordinarily nicely is to collaborate intently with our clients. I talked about our close-to-customer technique, placing R&D labs in very shut proximity to our clients. And once more, that is simply the way in which through which we be certain that we’re adequately assembly each their know-how and value wants going ahead.

Atif Malik — Citi — Analyst

Nice. After which a fast clarification, Doug, on the opex. You stated R&D will likely be up 12 months over 12 months. I wasn’t certain if that suggests complete opex can be up or SG&A is all the way down to offset the rise in R&D.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Complete opex might be going to be up Atif, R&D will likely be up extra, proper? We had 69% of complete spending on R&D within the final quarter. That is a excessive watermark. However we’re purposefully rising R&D., primarily due to all these inflections that we have been speaking about.

Tim Archer — President and Chief Government Officer

I feel that perhaps the simplest approach to consider it’s the lead time for us to develop new merchandise that we have to drive progress is sadly a bit of bit longer than the lead time for our spending income. So with an outlook that progress is coming and that we’re coming into this subsequent upturn, the place there are great alternatives for the corporate, we really feel very assured to take a position forward of that income exhibiting up, and that is I feel what we signaled for this 12 months. However with the boldness that we’ll see that progress in new merchandise and know-how funding from our clients.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Atif.

Operator

The subsequent query is from Toshiya Hari with Goldman Sachs. Please go forward.

Toshiya Hari — Goldman Sachs — Analyst

Hello, guys. Thanks a lot for taking the query. The primary one on WFE. Doug, I overlook in case you talked about this, however is there a primary half, second half form of bias that you simply’re keen to share as we take into consideration the trajectory of WFE this 12 months? And extra importantly, curious how we must be fascinated about your fee of outperformance vis-a-vis the market.

You guys have talked about clearly, depth and etch depth rising throughout the reminiscence house. You talked about superior packaging in HBM. HBM issues like dry resist. So assuming you are correct together with your WFE assumption and the market’s up name it, mid- to excessive singles.

What kind of outperformance can we form of count on from you guys in calendar ’24?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Sure. Toshiya, I suppose the primary — I feel it is a bit of bit second half weighted 12 months this 12 months. I feel it should be form of the sluggish begin to the 12 months, perhaps, proper? We simply guided to primarily flat revenues quarter-on-quarter. In order that’s a part of what you are seeing, however we’d count on will probably be considerably stronger within the second half.

After which total, we’re not going to provide the particular person elements between NAND, DRAM, foundry and logic, what grows extra. I feel every part most likely grows to a sure extent. Once we have a look at all these inflections so in all points of these finish markets, we see etch and deposition depth stepping up as you stroll from node to node to node. So that’s unchanged.

Toshiya Hari — Goldman Sachs — Analyst

Bought it. After which as my follow-up on China, Doug, you talked about China as a share of your techniques income to remain elevated within the March quarter. And then you definitely went on to say that, that quantity ought to decline as you progress by means of the 12 months. Is that simply purely a perform of your different companies, different areas enhancing all year long? Or are you form of sensing absolute decline in your China enterprise? And if that’s the case, what are among the areas or gadget varieties, or functions you are seeing a slowdown? Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

We’re not seeing China slowdown. It is purely simply timing of when spending is going on, actually.

Toshiya Hari — Goldman Sachs — Analyst

OK. Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Toshiya, we have ideally been utilizing the phrase, and I feel you heard it in each Tim and my feedback steady, proper? In order that’s a constant description that we’ve got been saying for some time.

Toshiya Hari — Goldman Sachs — Analyst

Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yep. Thanks.

Operator

The subsequent query is from C.J. Muse with Cantor. Please go forward.

C.J. Muse — Cantor Fitzgerald — Analyst

Yeah. Good afternoon. Thanks for taking the query. I suppose I hoped you might converse to type of your imaginative and prescient for what a restoration may appear like for NAND and the place we’d get to on a normalized foundation, maybe in 2025? And in case you mirror on maybe a decrease normalized quantity and take into consideration among the new areas that you simply’re investing in, whether or not it is reminiscence or superior packaging or modifications in bottom energy gate-all-around.

Is there sufficient type of juice there to get you to the place you may total drive that wealthy WFE depth and get us again to type of these peak ranges when 3D NAND was first adopted?

Tim Archer — President and Chief Government Officer

Certain, C.J. I feel the easy reply is, sure, we do consider that. I imply, we have — let me handle the NAND query first, which — as I discussed, this 12 months, clients are primarily specializing in know-how upgrades and what is smart. I imply finally, to drive the kind of progress that we expect we see long run.

Clearly, there are some additions that have to be made, however we’re not forecasting that this 12 months. With every of these know-how evolutions, etch and dep depth rises merely due to the growing variety of layers. And in a know-how improve, we have talked about the truth that Lam captures a a lot greater share of WFE due to the purpose that etch and deposition play within the know-how improve. So I feel that as we see NAND recovering and rising at a sure share fee, Lam will really considerably outperform that fee due to the truth that most of that’s coming from upgrades.

Now long run, I feel we’ve got turned to our consideration and strategically, we have stated we need to construct resilience into our enterprise by actually capturing plenty of the alternatives that exist. After all, in NAND the place we’re very sturdy, however actually exterior of NAND and a few of these different markets which might be changing into extra etch and dep intensive. And we have talked about these, whether or not it is gate-all-around or bottom energy or superior packaging, dry EUV patterning. And every of these, we have characterised as a $1 billion-plus alternative when absolutely scaled for Lam.

These are SAM growth which means that they’re incremental to the place Lam has been earlier than. So I feel while you play these out and clearly, we’ve got to achieve success in execution. That is why we hold speaking about we’re gaining traction, however there’s nonetheless a methods to go earlier than these inflections and all selections are made. However we expect these can actually drive Lam to new highs by way of income and clearly profitability as nicely.

C.J. Muse — Cantor Fitzgerald — Analyst

Very useful, Tim. I suppose a fast follow-up, Doug. I do know you are hesitant to information opex for the complete 12 months, however maybe you might assist us perceive perhaps the affect of the additional week on the March quarter? And the way you are fascinated about driving that R&D progress by means of the calendar 12 months?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Sure, C.J. I imply, it is 14 weeks versus 13. That is the fitting solution to type of give it some thought. You’ll be able to simply ratio it to know type of it is a longer quarter.

So that is the piece from that. After which any delta to get to the 29.5% op margin is a part of that starting to step up R&D. As we undergo the 12 months, although, we’ll purposely be rising the funding in R&D so that you simply may not see the historic leverage that we have delivered is what I described 1 / 4 in the past, and that is nonetheless very a lot how you need to be fascinated about it.

C.J. Muse — Cantor Fitzgerald — Analyst

Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yeah. Thanks, C.J. Welcome again.

Operator

The subsequent query is from Srini Pajjuri with Raymond James. Please go forward.

Srini Pajjuri — Raymond James — Analyst

Thanks. Tim, you talked about your trough EPS doubling primarily, which is an incredible achievement and execution. I feel a part of the rationale was your companies enterprise did enhance as a % of the combo. I feel that helped for certain stabilizing the cyclicality a bit.

In order we undergo the subsequent, I suppose, as we type of look out to the subsequent couple of years as enterprise recovers, simply curious as to how you consider the combo shaking out between techniques and companies. And what kind of implications which may have in your prime line and in addition your margin profile? And I suppose, on the subsequent peak EPS, if you wish to discuss? Thanks, sir.

Tim Archer — President and Chief Government Officer

Nicely, here is why it is at all times a bit of troublesome to reply this query is as a result of we’re actually investing to develop our techniques enterprise tremendously as nicely. And so we do not have a look at it as one buying and selling off versus the opposite. And so in reality, one type of begets the opposite. The higher our techniques enterprise does the quicker our put in base grows, and that is actually the story from 2019 in that — till now, once we discuss how a lot the put in base has grown.

We shipped plenty of new techniques that grew that put in base by practically 50%. So going ahead, I feel that we anticipate the ratio of CSBG income to total income staying type of within the historic vary that it has been. And that is simply going to be pushed by type of equal on success in each elements. However the CSBG income, the put in base enterprise, not solely offers us stability, however it additionally opens new channels for progress for the corporate.

And I’ve talked about this on earlier calls, which is we — I feel that once we take into consideration how Lam leverages, issues like synthetic intelligence and information. It is within the put in base companies enterprise. On the final name, I talked about even cobots, the usage of collaborative robots to begin to do among the service that at the moment is finished by expert engineers. Our clients on this business have to seek out methods to have the ability to innovate quicker and in addition present manufacturing companies at a decrease value.

And I feel we are able to try this by innovating across the put in base and create new merchandise and repair choices that assist us develop at a quicker tempo than the put in base itself is rising.

Srini Pajjuri — Raymond James — Analyst

Bought it. After which Doug, one clarification on the deferred income. I feel it went up about $238 million this quarter. You talked about prepayments.

Simply curious, are clients nonetheless prepaying due to any provide constraints? Or is that this an ongoing, I suppose, pattern that you simply’re seeing? Simply in case you can discuss how we should always take into consideration deferred income going ahead, that will likely be useful. Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yeah, Srini. I suppose what I described is you consider the superior cost is when we’ve got a brand new buyer that we’re simply type of understanding what their steadiness sheet appears to be like like, particularly if they are a non-public buyer that we may see the steadiness sheet. It is not publicly reported. And the creditworthiness may be form of questionable.

We require money upfront earlier than we start manufacturing the software, and that is what is going on on there. That is all it’s.

Srini Pajjuri — Raymond James — Analyst

Bought it. Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Srini.

Operator

The subsequent query is from Stacy Rasgon with Bernstein Analysis. Please go forward.

Stacy Rasgon — AllianceBernstein — Analyst

For the primary one, across the China BOP being steady in calendar ’24. Do you see all market segments being steady? Or do you see some like being stronger and a few as being weaker? Like how do you see that interaction?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Stacy, I do not actually see an enormous change 12 months on 12 months relative to finish market. I am going to remind you, when China DRAM was second half weighted final 12 months. It is most likely a bit of bit first half weighted in China, perhaps greater than a bit of bit this 12 months. However 12 months over 12 months, I do not assume I actually take into consideration a major change in contribution for the complete 12 months.

Stacy Rasgon — AllianceBernstein — Analyst

Bought it. That is useful. And I suppose a follow-up on the China questions, and perhaps it is a follow-up on one of many earlier questions. But it surely does sound to me like you might be suggesting China combine ought to come down by means of the 12 months.

Possibly you may make clear that as a result of if I’ve obtained total steady China revenues like how does your China combine come down materially? It would not appear like you are on the lookout for total like non-China WFE to develop a ton, proper, in among the different areas.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yeah. Let me remind you, in 2023, China was a extra modest quantity of WFE that grew within the second half of the 12 months. And so the feedback we’re making are 12 months over 12 months, it is comparatively steady. Form of the half-on-half stuff most likely appears to be like totally different in ’24 than it did in ’23 in China particularly.

Stacy Rasgon — AllianceBernstein — Analyst

That is useful. And so then exiting the 12 months, you assume you are again to that form of normalized gross margin vary because of that as China falls off within the second half?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Sure. The shopper combine stuff, I feel, mitigates considerably as we undergo the 12 months, and it continues to be fairly sturdy within the March quarter steerage.

Stacy Rasgon — AllianceBernstein — Analyst

Bought it. That is useful. Thanks, guys.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Stacy.

Operator

The subsequent query is from Vivek Arya from Financial institution of America Securities. Please go forward.

Vivek Arya — Financial institution of America Merrill Lynch — Analyst

Thanks for taking my query. For my first one, I am curious, what’s your evaluation of NAND provide demand because it exists at the moment? I feel in your WFE view, you might be assuming that NAND grows however extra due to know-how upgrades. However what are your clients telling you for as to once they need to begin including extra instruments? And what’s Lam’s alternative to develop NAND proper at a measurable tempo within the second half of the 12 months?

Tim Archer — President and Chief Government Officer

Yeah. I feel, initially, I would not essentially discuss what we’re discussing with our clients on that standpoint. However issues which might be on the market. We do know, and I feel you realize that the utilization cuts had been fairly extreme in NAND final 12 months.

And so there is a great quantity of capability that has been offline and we have stated previously that must be introduced again on-line. And I feel the query and the discussions we’re having is that what know-how node ought to that capability be restarted. And in lots of circumstances, there’s a very excessive probability that know-how improve cycle will happen as that gear is introduced again into service. And so in that case, we’d really start to see a restart of among the utilization-driven income that we get from issues like spares and companies, in addition to, on the similar time, a restart of know-how improve revenues.

And that is why I feel that from a NAND perspective this 12 months, we expect that may successfully signify nearly all of the spend that happens on this phase.

Vivek Arya — Financial institution of America Merrill Lynch — Analyst

OK. After which, Tim, as lots of the DRAM clients are saying that they plan to shift a bit extra towards HBM from DDR. Does which have any constructive or detrimental affect in your CSBG and the spares enterprise?

Tim Archer — President and Chief Government Officer

No, I can not fairly make that connection proper now. I am off to present us some thought. However clearly, we see an affect on our techniques enterprise, as I discussed, the place we’re having so as to add the particular HBM-related particularly superior packaging steps associated to the stacking of HBM itself. And we’re seeing vital progress in that space.

And so with that, given we’re delivery extra techniques, there may be some incremental spares enterprise and companies enterprise that goes together with that. However the techniques portion of that sort outweighs from a {dollars} perspective.

Vivek Arya — Financial institution of America Merrill Lynch — Analyst

I suppose perhaps simply to make clear, does your CSBG enterprise begin to type of develop in keeping with the expansion in your instruments enterprise total? Or do you assume there may be going to be a lag issue as a result of it slowed down later? Does it begin to regrow later additionally?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Is dependent upon the speed of progress in WFE to be completely frank, which might be coming. See, spare service upgrades chug alongside, and we expect that is going to profit as utilization and whatnot begins to come back again. Then to essentially reply your query, you bought to go determine what you assume the tempo of WFE progress is. I am not going to place numbers on that proper now.

We’ll type of wait and see.

Vivek Arya — Financial institution of America Merrill Lynch — Analyst

Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks,

Operator

The subsequent query is from Krish Sankar with TD Cowen. Please go forward.

Krish Sankar — TD Cowen — Analyst

To begin with, for Doug. I feel Doug has talked about a few gradual restoration in WFE this 12 months, type of extra back-half rated. So I am type of curious, and Doug, I am not on the lookout for like steerage. What I am simply questioning is, is that this higher assume Lam’s revenues within the calendar second half of 2024 goes to be higher than first half? That is for my first query after which I’ve a follow-up.

Doug Bettinger — Government Vice President, Chief Monetary Officer

You are a bit of bit muffled, Krish, however I feel you had been asking about our efficiency together with WFE. And albeit, I feel we’ll mirror regardless of the trajectory of WFE appears to be like like with an expectation that etch and dep outgrows to a sure extent. I feel I answered your query, though you had been a bit of bit muffled there.

Krish Sankar — TD Cowen — Analyst

Doug, I used to be simply attempting to surprise if calendar second half ’24 income for Lam goes to be higher than calendar first half just like WFE?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Yeah, I feel will probably be, Krish, I am not going to place numbers on it but, however we’ll mirror what goes on with WFE.

Krish Sankar — TD Cowen — Analyst

Bought it. Bought it. OK. After which my follow-up is for Tim and Doug.

You spoke about HBM and AI and all the great things. I am simply questioning does HBM and DDR5, two units for dep and etch differ from DDR4 and Legacy in a approach, is it extra executed from a margin standpoint? Or is it a mutual standpoint?

Doug Bettinger — Government Vice President, Chief Monetary Officer

I suppose what I might say, Krish, from a margin standpoint, you should not take into consideration any differential margin essentially. The incremental piece for the stuff that goes in high-bandwidth reminiscence is a much bigger die, you realize that. The die itself, constructing a DDR5 die is basically the identical gear that builds DDR5 that does not go into HBM. The incremental stuff comes while you go into the superior packaging stuff, the Syndion deep silicon etch and the electroplating are areas the place we’re terribly sturdy along with another issues.

That’s clearly incremental gear.

Tim Archer — President and Chief Government Officer

Yeah. And I feel from an etch and dep depth perspective, normally, I feel you talked about DDR4 to DDR5. I imply I feel normally, with every know-how node evolution, whether or not it is DRAM, NAND, foundry or logic, we have stated etch and dep depth rises with know-how development. And so I feel you may think about that there is extra gear being wanted, and that is along with the truth that bigger die sizes drive higher gear per bit out.

So there’s plenty of components that each time we transfer ahead, there’s extra gear and extra Lam gear required with these know-how nodes.

Krish Sankar — TD Cowen — Analyst

Bought it. Thanks, Tim. Thanks, Doug.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Krish.

Operator

The subsequent query is from Joe Moore with Morgan Stanley. Please go forward.

Joe Moore — Morgan Stanley — Analyst

Nice. Thanks. If I can ask about your DRAM techniques revenues within the December quarter. They had been type of again to the highs of a few years in the past, however I do know you had some China in there, I feel there’s among the occasions packaging.

Are you able to simply give us a way for what’s type of core DRAM inside that? And then you definitely’re fairly constructive on the place that is going. Are you able to give us a way of the dynamics of China going ahead versus different areas and different elements of DRAM?

Doug Bettinger — Government Vice President, Chief Monetary Officer

I suppose, Joe, I’d simply to take you again to what I had in my script. Two issues are driving the energy in DRAM within the December quarter, and also you talked about each of them, frankly. It is excessive bandwidth reminiscence in DDR5. Along with the truth that we have got a China buyer in DRAM within the second half of the 12 months.

That features September and December, that wasn’t within the first half. So every of these issues contributes to the energy you noticed in December.

Joe Moore — Morgan Stanley — Analyst

OK. After which wanting ahead, it appeared such as you had greater than six months of demand from that China buyer within the second half going ahead. Does that come down, however core DRAM comes up and HBM comes up?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Most likely.

Joe Moore — Morgan Stanley — Analyst

OK. Nice. Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Joe.

Operator

The subsequent query is from Brian Chin with Stifel. Please go forward.

Brian Chin — Stifel Monetary Corp. — Analyst

Possibly going again to NAND, the all time quarter for NAND spending was most likely greater than the full degree of NAND spending perhaps for all of final 12 months. And so even when it is off a low base, is not it fairly logical that NAND WFE ought to exhibit the most important or highest fee of enchancment in ’24?

Doug Bettinger — Government Vice President, Chief Monetary Officer

I would not essentially draw that conclusion, Brian. I feel all we’ll let you know is that I feel each phase WFE grows this 12 months, NAND, DRAM, foundry, logic, it is all as much as a sure extent. I am not going to get into the enterprise of quantifying every particular person one as a result of frankly, on the finish of the day, we’ll get it unsuitable. However I feel every part will develop to a sure extent this 12 months.

Brian Chin — Stifel Monetary Corp. — Analyst

OK. Honest sufficient. After which simply to type of degree set and DRAM after which additionally wanting ahead. How a lot did DRAM business spending really declined in ’23? It appears to be higher than what was initially thought primarily based on HBM, et cetera.

And in addition, are you able to give us a way of the variety of wafer begins or % of the DRAM put in base that may very well be transformed to extra superior 1-alpha or 1-beta-like course of nodes this 12 months?

Doug Bettinger — Government Vice President, Chief Monetary Officer

I suppose, Brian, what I might say and Tim, I feel had this in his script, reminiscence total was down roughly 40%. NAND was down north of 70%. The differential to get to the quantity is DRAM. You are able to do that.

And sure, I feel the second a part of your query, HBM and DDR5 has been an enormous a part of the energy in DRAM.

Tim Archer — President and Chief Government Officer

Sure.

Brian Chin — Stifel Monetary Corp. — Analyst

OK. And that was really the second half was type of extra towards, what’s the potential variety of wafer begins or the % of the put in base that is form of recreation for these conversions to 1-alpha, 1-beta gentle nodes?

Doug Bettinger — Government Vice President, Chief Monetary Officer

For essentially the most half, in reminiscence, every part will get upgraded to the subsequent node, all of it. That is at all times been the case. It is not a brand new phenomenon.

Brian Chin — Stifel Monetary Corp. — Analyst

OK. Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks, Brian.

Operator

The subsequent query is from Chris Caso with Wolfe Analysis. Please go forward.

Chris Caso — Wolfe Analysis — Analyst

Sure. Thanks. Good night. The query is on supply occasions.

And also you had talked about, clearly, your supply occasions could also be totally different than some others within the business. The place do they sit proper now? And as a consequence, how a lot visibility do your clients want to present you? And with that, once we begin to see some stronger maybe reminiscence spending, how rapidly will you be capable to react to that and switch that for income?

Tim Archer — President and Chief Government Officer

Yeah. So we do not clearly publicly telegraph our lead occasions. However we had talked about the truth that throughout the COVID pandemic, our lead occasions on account of provide chain shortages, it stretched out fairly lengthy. And people have now come again to a way more normalized degree, though they nonetheless are such that for us to make shipments inside this 12 months, we must learn about these orders and that forecast fairly rapidly.

The one factor that is helped is I talked about our investments in new manufacturing and provide chain operations inside our buyer ecosystems. That is placing us a lot nearer, it is diversifying our provider base and I feel it should — by means of this subsequent upturn make us way more attentive to buyer wants. So actually, we fear much less about lead time and extra about our capacity to reply in the timeframe, which our clients want to position orders to satisfy their ramps. We have a tendency to not be within the bottleneck, let’s put it that approach by way of a lead time perspective, planning a brand new fab.

Chris Caso — Wolfe Analysis — Analyst

Honest sufficient. As a follow-up query, I needed to ask about bottom energy. And final quarter, you made some disclosures concerning the income affect to Lam as that occurred. Might you give a bit of extra shade on that and particularly, we all know that the totally different clients are having totally different implementations of bottom energy.

At what level does that begin to turn into a significant driver for Lam?

Tim Archer — President and Chief Government Officer

I feel given the vital function that each etch and deposition play in that and our sturdy place in elements of the bottom energy course of like copper plating the place a few of these layers have gotten fairly thick and due to this fact the processes turn into longer. I’d say, going to very quickly turn into fairly significant for the corporate. And once more, it is only a additional demonstration of how going 3D and primarily utilizing etch and deposition to create extra advanced architectures means that you can scale back energy, enhance chip efficiency, and in addition scale back value. And we talked about it within the sense of bottom energy.

You are seeing the identical factor with chip stacking and HBM and power integration. And that is why I stated, I feel the subsequent period of semiconductor is characterised by all of those extra distinctive 3D architectures. They’re all good for the forms of merchandise we promote. Thanks, Chris.

Ram Ganesh — Head of Investor Relations

Operator, we’ve got time for another query.

Operator

And that query comes from Thomas O’Malley with Barclays. Please go forward.

Thomas O’Malley — Barclays — Analyst

Hey, guys. Thanks for taking my query. I used to be curious in case you guys had a view on the HBM market. Clearly, with the accelerator market rising as rapidly as some assume.

There’s issues that the HBM market may very well be delivery above peak in ’24 and ’25. Do you guys have a view internally on simply how briskly HBM is rising as a market phase? Might you simply give us the attitude of while you have a look at an acceleration of a software street map with a buyer on HBM. How a lot of that has pulled in, within the final six months from what you’d sometimes see from a DRAM buyer once they’re on the lookout for a software? Thanks very a lot.

Tim Archer — President and Chief Government Officer

Nicely, I feel that as an actual key provider into the HBM market, as I discussed, the sturdy place we’ve got within the processes required earlier than the stacking, that is an space the place we’re seeing very, very sturdy demand. I feel that whether or not or not sooner or later, it is delivery above peak, I feel that this AI market is continuous to evolve at a really, very quick fee. And all we’re targeted on proper now could be making certain we’re constructing out our personal capability and capabilities. And making certain that we keep that know-how management that is permitting us to carry 100% market share of the TSV formation in HBM.

And so actually, that is our focus is maintain the place and let the market develop as quick because the market grows.

Thomas O’Malley — Barclays — Analyst

Useful. After which only one on the make-up of stock. You guys have talked about working down stock all year long. Is there any shade you may give us on the make-up of that stock? Is it extra memory-related or foundry logic-related? I do know you do not need to give specifics, however simply the place do you see that stock coming down by means of the primary half of the calendar 12 months?

Doug Bettinger — Government Vice President, Chief Monetary Officer

Sure, Tom, the speed of decline in reminiscence as we went into ’23 was fairly dramatic, and we ended up taking extra stock than we wanted particularly for reminiscence. So there is a larger element of it focused at reminiscence and as reminiscence recovers, the stock will come down.

Thomas O’Malley — Barclays — Analyst

Thanks.

Doug Bettinger — Government Vice President, Chief Monetary Officer

Thanks for the query.

Operator

This concludes our question-and-answer session. [Operator signoff]

Period: 0 minutes

Name members:

Ram Ganesh — Head of Investor Relations

Tim Archer — President and Chief Government Officer

Doug Bettinger — Government Vice President, Chief Monetary Officer

Tim Arcuri — UBS — Analyst

Harlan Sur — JPMorgan Chase and Firm — Analyst

Atif Malik — Citi — Analyst

Toshiya Hari — Goldman Sachs — Analyst

C.J. Muse — Cantor Fitzgerald — Analyst

Srini Pajjuri — Raymond James — Analyst

Stacy Rasgon — AllianceBernstein — Analyst

Vivek Arya — Financial institution of America Merrill Lynch — Analyst

Krish Sankar — TD Cowen — Analyst

Joe Moore — Morgan Stanley — Analyst

Brian Chin — Stifel Monetary Corp. — Analyst

Chris Caso — Wolfe Analysis — Analyst

Thomas O’Malley — Barclays — Analyst

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