Lam Research Corp (LRCX) — Q4 2019 Earnings Call Transcript

Good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and review our financial results for the June 2019 quarter and our outlook for the September 2019 quarter. The press release detailing our financial results was distributed a little after 1:00 P.M. Pacific Time this afternoon. The release can also be found on the Investor Relations section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the Risk Factors disclosures of our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release. This call is scheduled to last until 3:00 P.M. Pacific Time. A replay of this call will be available later this afternoon on our website. With that, let me hand the call over to Tim.

Thanks, Tina, and good afternoon to everyone on the call. In the June quarter, Lam delivered strong results. Revenues, gross margin, and operating margin exceeded the midpoint of the guidance we've provided on our last earnings call, while EPS exceeded the high end of the guidance. Our ability to deliver these results was made possible by the support of our customers, our employees, and our partners, and I would like to thank them for their ongoing commitment to Lam's success. I would like to start by offering some perspective on Lam, given the uncertainties surrounding trade and other influences on the market environment. Through the first half of calendar 2019, we have executed at a high level by focusing on what is in our control. And despite a difficult memory market, we have delivered on or exceeded our commitments. As you will hear from Doug later, we generated another $880 million in cash from operations in the most recent quarter. At the same time, we have continued to prioritize investment in innovation and product differentiation, shifting a higher percentage of our total OpEx to R&D than in any prior quarter in our history. We remain committed to our long-term growth vectors observed available market expansion, market share gains, and increased revenue from our installed base. Specific proof points are emerging that validate our progress in each of these areas and I will touch on them later in my remarks. But first let me update our industry outlook. Our view on total WFE remains directionally unchanged, with calendar year 2019 down mid- to high-teens percent from 2018. However, since our last earnings call, Memory spending is incrementally lower, while Foundry spending is tracking higher, we believe due in part to acceleration in 5G development leading to strong demand for 7-nanometer and 5-nanometer products. We now view Foundry Logic WFE to be second half-weighted versus our prior baseline of first half-weighted for calendar 2019. Within Memory, customers have continued to take meaningful actions to restore supply and demand balance, reducing investment and lowering utilization levels for both NAND and DRAM, as we progressed through the June quarter. As a result, we see year-over-year bit supply growth for both NAND and DRAM continuing to decline, with bit supply growth rates exiting the year well below the long-term demand trend lines. On the demand side, we are encouraged by early signs that NAND price declines are leading to an acceleration of content growth in devices. For example, SSD penetration in PCs is expected to reach nearly 60% by the end of 2019. But more importantly, the average density per drive is also growing. The predominant SSD configurations in the PC market are now 256 gigabyte and 512 gigabyte versus 128 gigabyte and 256 gigabyte a year ago. The demand impact is amplified as both units and content per unit grow together. Similarly, we have seen acceleration in bit content growth for NAND and mobile devices. This is evident not only in the premium phone segment but also in the mid-tier and lower-end phones, where 128 gigabyte offerings are seeing the fastest growth versus 64 gigabyte models a year ago. We believe the combination of factors influencing supply and demand creates a favorable setup for Memory as we enter 2020. Our actions are focused on ensuring Lam is in the best possible position to benefit from the anticipated recovery in Memory spending. This focus is contributing to gains in both served market and market share as evidenced by wins this quarter across various applications, as well as in road maps for emerging 3D architectures. In NAND, we are working closely with customers to develop differentiated solutions for potential limiters to 3D scaling. An excellent example is the wafer processing challenge created by stress-induced wafer bow as the number of 3D NAND layers scales to 100 and beyond. Given Lam's leadership position in critical 3D NAND etch and deposition applications, we are best positioned to address this problem. The new Lam tool, which deposits a counter-stress film on the backside of the 3D NAND wafer, using an innovative single-step process has been introduced to leading etch customers with multiple repeat orders received. Importantly, the learning we gain through our investments to scale 3D NAND will be broadly applicable as new 3D architectures emerge in other segments. For example, we believe Lam's leadership in enabling 3D scaling will become increasingly valuable as logic devices migrate to a 3D gate-all-around structure in 3-nanometer as new memory such as PC RAM scale vertically for cost and bit density improvement, and as 3D heterogeneous integration is adopted as a preferred packaging option for high-performance system solutions. For 3D heterogeneous integration, several leading companies across Foundry and Logic have announced architectures to connect different IP blocks using high-density interconnects with through-silicon vias. Lam's SABRE 3D electroplating and Syndion etch tools offer best-in-class technology backed by years of high-volume production leadership in the TSV market. During the quarter we secured an important win at a leading logic customer for our SABRE 3D electroplating system for 3D chip stacking applications. This is a significant validation of Lam's ability to leverage its industry-leading position in 3D scaling to new and emerging manufacturing inflections. We are also seeing successes from our customer-focused investments in DRAM. We are collaborating with customers on critical new technologies required to scale to the 1Z and 1A nodes. For instance, as DRAM shrinks, devices shrink to 1Z and beyond, the performance impact of resistance-capacitance delays becomes a challenge that must be addressed. This quarter, we won critical spacer applications at multiple leading DRAM manufacturers for the 1Z node due to our ability to deposit highly conformal low-k films that help reduce RC delay. In addition to our progress on critical applications, you might recall that I have spoken previously about the NAND semi-critical process space and this is an area of increased focus for Lam as we drive to gain market share. In the most recent quarter, we began to deliver on this opportunity with significant conductor etch wins at multiple NAND customers for mask open applications. Specifically, Lam's ability to create a highly productive, single-step etch process to replace our competitor's multiple step approach allowed us to differentiate on system throughput, a key decision factor in the semi-critical space. Another example is seen in dielectric etch where we recorded a key win for a semi-critical metal contact application at a leading memory maker. As 3D NAND scales, the peripheral context becomes deeper and aspect ratios increase. Our dielectric etch system demonstrated faster etch rates and superior profile control, leading to greater capital productivity and less frequent maintenance. For our Customer Support Business Group, we continue to see 2019 as another year of solid revenue growth despite lower WFE spending. In the June quarter, we achieved a second consecutive quarterly record for revenue from our Reliant Systems business as customers invest to address robust non-leading etch demand from end markets such as IoT, automotive, and powered devices. The combination of our focus on leading-etch technologies and installed base performance is being recognized by our customers. In the most recent quarter, our top customer completed their annual supplier evaluation process, ranking us as their number one supplier as measured by a broad set of installed base performance, cost reduction, and R&D engagement metrics. With this newest rating, we are now in the number one position in more than half of our top customers. To wrap up, the near-term environment remains challenging. But the long-term growth opportunity for both our industry and for Lam is compelling. We are focused on executing to our commitments and extending the differentiation of our product and services portfolio. I believe that our continued prioritization of customer-focused investment would yield lasting benefits. And as Memory spending returns to normalized levels and non-Memory technologies increasingly rely on 3D scaling for performance and cost improvement, Lam will be in an excellent position to outperform. Now I'd like to turn the call over to Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining us today during what I know is a busy earnings season. Lam executed well in the June quarter with our results exceeding the midpoint of guidance for all financial metrics. Earnings per share exceeded the high end of the guidance range we provided due to stronger gross margin as well as proactive management of operating expenses. Our EPS performance is, I believe, a testament to our continual focus on delivering on our ongoing commitments. As Tim noted, our expectation is that 2019 WFE will be down from calendar year 2018 in the mid-to high teens percentage level. Since our last call, we're seeing some upside strength in Foundry, which was partially offset by a reduction in Memory spending. From a segment perspective, our systems revenue for the combined Memory segment increased slightly to 64% of total system revenue from 61% in the March quarter. We had an increase from the March quarter in the non-volatile memory segment from 40% to 46%, while DRAM decreased to 18% from 21%. Memory revenue continues to be mainly targeted towards conversion-related investments. In DRAM spending, it's targeted towards 1Y and some initial 1Z investment. In NAND, it's primarily conversion to non-auxiliary devices. Additionally, we are seeing initial investment on 128-layer structures. We're continuing to see healthy spending in the Foundry segment, which came in at 23% of our system revenue for the March quarter. And as Tim mentioned, this is heavily focused on the 5 and 7-nanometer nodes. This was slightly down from 27% last quarter although still quite strong. The Logic and Other segment was flat with the prior quarter level contributing 13% of system revenue. We expect to see continued strength in the Foundry and Logic space throughout the remainder of the calendar year. It's worth noting that from a geographic perspective, 33% of our revenue was generated in the China region. The majority of this came from indigenous Chinese customers. We expect to see higher than our average concentration level of revenue in the China region for the September quarter as well. We executed well on income statement performance for the June quarter. Revenues came in at $2.361 billion, which was above the midpoint of the June guidance. Gross margin for the quarter was 45.9%, which was better than expected primarily due to customer mix and improved field resource utilization. Also, as we've stated in previous quarters, our actual gross margins are a function of several factors such as our raw business volumes, product mix, and customer concentration, and you should expect to see some variability quarter-to-quarter. Operating expenses in the June quarter declined to $450 million from the prior quarter. We are proactively managing expenses with our lower revenue levels. We continue to invest in our strategic R&D programs however and remain focused on our commitment to technology and productivity leadership. The percentage of R&D spend increased to approximately 66% in the June quarter, which was a high watermark. Operating income in the June quarter was $635 million, and operating margin was 26.9% at the high end of our guidance range. The non-GAAP tax rate for the June quarter was approximately 11%, which is slightly lower than our long-term rate. For the remainder of the 2019 calendar year, we expect a tax rate in the low to mid-teens. And I'll just remind you, you should expect to see fluctuations in the rate from quarter to quarter. For June, other income and expense was a total of approximately $6 million of expense. This total includes interest expense for a full quarter related to the issuance of a $2.5 billion senior notes that we completed in the March quarter. The quarterly interest expense is partially offset by the interest income earned on higher cash balances for the company. I'll just remind you that total interest expense on all tranches of our debt is approximately $45 million per quarter. We continued to execute on our capital return program during the June quarter. For the quarter, we allocated $1.3 billion to capital return with $1.1 billion coming in share repurchases and $165 million in dividend payments. Our share repurchase activities were from a combination of open market as well as structured repurchases. The structured repurchase program that we entered into is intended to continue to execute throughout our December quarter. We've completed approximately $2 billion of the $5 billion authorization that we announced in the March quarter. Over the past 1.5 years, we've utilized approximately $6 billion in buybacks and lowered diluted share count by roughly 15%. I believe this demonstrates our continued commitment to return meaningful cash to our shareholders. Earnings per share was $3.62, which was over our guidance range for the June quarter. This upside was driven primarily by better gross margin and lower-than-expected operating expenses. Diluted shares per EPS were approximately 154 million shares, which reflects a 5% decrease in quarterly diluted share count since the beginning of the calendar year. The share count includes a dilutive impact of approximately 5 million shares from the 2041 convertible notes. The dilution schedules for the remaining 2041 converts is available on our Investor Relations website for your reference. Let me now move to the balance sheet. Our cash and short-term investments including restricted cash decreased in the June quarter to $5.7 billion from $6.4 billion in the March quarter. The decrease is mainly due to the capital return activities within the quarter, offset by strong cash generation from operations of $880 million. This is the second consecutive quarter, where we had cash from operations in the $900 million range. DSO decreased by five days to 56 days. Our inventory balance decreased by $82 million. Inventory turns remained at industry-leading levels coming in at 3.3 times. Company non-cash expenses included approximately $45 million for equity compensation, $47 million for depreciation, and $18 million for amortization. Amortization was down from last quarter by 50% as a portion of the intangibles from the Novellus acquisition have now fully amortized. Capital expenditures were $66 million in the quarter, which was a slight decrease from the $76 million that we saw in March. The June quarter ended with approximately 10,700 regular full-time employees, which is down somewhat from the prior quarter. Additionally, I'd like to remind you that we used temporary labor as part of our operating model. We have reduced this temporary labor by almost 40% or 600 headcount in the last year. This flexibility is a critical part of our operating model enabling us to deliver sustainable operating profits during a time of reduced revenue levels. So now looking ahead, I'd like to provide our non-GAAP guidance for the September 2019 quarter. We are expecting revenue of $2.150 billion plus or minus $150 million; gross margin of 45% plus or minus one percentage point; operating margin of 24.5% plus or minus one percentage point; and finally earnings per share of $3 plus or minus $0.20 based on a share count of approximately 150 million shares. Before closing my scripted remarks, I'd like to reiterate some of the tone that Tim shared in his script. We continue to not see a recovery in Memory spending which is our strongest market for 2019. We do observe dynamics in those markets, however, that are positive signs. Some examples of these signs are demand elasticity, pricing trends, and management of factory utilization to bring inventory down. We are tracking a double-digit number of new fabs ready to receive equipment shipments during this year and we see plans for that to happen again next year. We continue to believe as a result that 2020 sets up as a better year than 2019.

Good afternoon. Thanks for taking my question. A quarter ago, the supply-side situation in Memory was one of disciplined spending and sort of reining in supply. It was really the demand side that was still uncertain, but just even over the past few weeks it seems that the demand side is starting to materialize here in the second half of this year. PC market looking seasonally stronger, cloud spending set to accelerate this quarter, and you even have several big sort of AI and deep learning programs that are starting to fire. Your customers are also talking about inventory starting to come down. So is the Lam team feeling more confident, and more importantly your customers feeling more confident about the prospects for a healthier market environment exiting this year relative to three months or six months ago?

Sure. Harlan, I'll take that and then Doug can add what he would like to. Clearly, I maybe – I walk you back since you kind of sets us as a baseline three or six months ago. The very first call of this year we laid out a view that Memory spending really wouldn't recover for this entire year. You just heard Doug kind of reiterate that again. But that didn't mean that through the year we wouldn't see progress, progress in sentiment, progress in both the supply side and maybe the demand side. And so I guess, what I would say is incrementally you are hearing commentary about the demand side. I talked about elasticity. You've heard that also from some others even closer to those markets than us. So I think that you're starting to see some sentiment in NAND that are positive signs. Back six months ago we also said that, given the timing in which NAND corrected versus DRAM, that NAND corrected earlier, and therefore would be likely the first market where we would see end demand increases as well as pricing and market improvements. What we've tried not to do – and it's just challenging given the uncertainty in the market is pin down exactly when that happened. So we have put an end year supply growth rate number out there which was we said on the last call and we reiterate now in the range of about 30% supply growth for NAND as we exit the year. And that's about 10 points below what Lam sees as long-term demand growth. And so again, what we said is at that point it feels like the market will have tightened and investment could return, but obviously pinning that exact timing is challenging. I feel like the year in terms of supply improvement, demand improvement discipline is playing out very close to what we thought it would with a whole lot of moving parts but in general and as I said directionally very much likely we thought at the beginning of the year. I don't know if Doug has anything to add.

No. Perfect Tim. I don't really have anything to add. You're starting to see Harlan you alluded to it, some of the early indications that the market is getting healthier is turning. And inevitably I think we all know it's a question of when not if that memory spending will recover and that continues to be how we see it.

Great. Thanks for the insights there. And then on the heavier China domestic mix just, given the continued trade tensions U.S. and China which is actually motivating a number of the China-based companies to bring in more chip design domestically especially given some of the recent component bans and the delist additions. Have you guys seen an increase in dialogue or programs that suggest a step up on China domestic activities to accelerate their semiconductor manufacturing capabilities?

Yes. It's difficult to connect one factor directly to another. At the start of this year, we indicated that domestic spending in China would be stronger than last year. At this point, it appears to be even more robust. Demand from domestic Chinese customers is strong, as Doug mentioned. There is clearly a long-term desire to enhance domestic capabilities. The main challenge for us is the uncertainty caused by trade discussions, which affect the investment plans of both local Chinese customers and global companies, making them uncertain about the demand landscape. We are managing this situation effectively. We believe our market share in China is solid, and as local Chinese customers begin focusing on Memory, our market share should strengthen further. This region is crucial for us, and we closely monitor developments there to manage our approach effectively.

Great.

Hi, guys. Thanks for taking the question. Tim, you talked a little bit about your focus on addressing semi-critical applications in your prepared remarks. And I think you threw out an example in conductor etch where you managed to have some wins in the quarter. Just curious to semi-critical applications in general how meaningful is that part of the market as a percentage of etch and deposition? Where is your market share today? And how do you see that evolving over the next couple of years? And then I have a follow-up.

Yes, that's an excellent question. We mentioned previously that as the year progresses, especially during our Investor Day, we may provide more details about the size of the semi-critical segment as a percentage of our overall market share, but we're not ready to share that information today. However, semi-critical is an important segment within the etch market. It's crucial to emphasize that while our core strength lies in the critical market, to achieve long-term growth and outperform the industry, we must also remain competitive in the semi-critical area. We've defended our critical positions in all markets last quarter, which is a key focus for us each quarter. Our growth opportunities lie in capturing semi-critical positions from competitors. Success in this area relies heavily on productivity. As mentioned in previous discussions, our company is skilled in improving productivity, particularly in the deposition side, which encompasses a significant portion of the semi-critical market. We aimed to highlight today our renewed commitment to delivering top-notch productivity to our customers, which can translate into wins for Lam in the semi-critical etch markets. We provided examples of our progress in both conductor etch and dielectric etch, reflecting our performance against different competitors. We are making steady progress, and we will keep you updated on our efforts.

Thank you very much. As a follow-up, I would like to know your perspective on EUV technology. How quickly or slowly is it advancing in the Foundry and Logic sectors? What impact do you foresee this having on your business in 2020? Additionally, one of your customers recently mentioned the possibility of implementing EUV in their DRAM business at the 1Z nanometer node. How do you anticipate this developing over the next 12 to 18 months, and what potential effects could this have on your business? Thank you.

Sure. It’s interesting, so I'll start with a clear statement. When we are asked about EUV, I interpret it as a concern about its potential negative impact on Lam's business. I want to clarify that, at this moment, we see EUV as beneficial for Lam. Here are a couple of reasons for that. We share the view held by many of our customers that EUV is essential for cost-effective scaling, which is necessary for advancing to new technology nodes. New nodes are crucial for Lam, especially since our critical applications business is at the heart of what we do. New critical applications are generated as technology progresses from node to node, and this is part of our growth strategy—continuing to secure the next critical applications in development. New nodes also expand our serviceable available market, introducing new materials and architectures that allow us to utilize etch and deposition more efficiently, leading to new business opportunities. Regarding negative impacts, multiple patterning continues to increase even with EUV. While it may not grow as rapidly as it would without EUV, predicting the exact number of wafers that will be produced in future nodes without EUV is challenging. Overall, we believe EUV is advantageous for Lam. I also mentioned on our last call that EUV represents a major technology transition, and its introduction speed heavily relies on productivity. We believe Lam can play a significant role in enhancing productivity within the patterning module using etch and deposition techniques, which in turn creates further opportunities for us. We are collaborating with ASML in this area and it remains a key focus for us. Regarding your question about the introduction in Logic and Foundry, our perspective aligns with the industry's consensus, so I don't have much to add there. Concerning the 1Z insertion, it’s understood that there is not a widespread agreement that DRAM and 1Z will typically utilize EUV. One customer has mentioned considering it as a potential learning node, but I don’t have additional insights to provide beyond that.

Thanks very much.

Thanks, Toshiya.

Good afternoon, everyone. Congratulations on the strong results. According to our analysis, if you examine your June shipments in the Memory market, they are down roughly 50% from their peak. However, they are still nearly 50% higher than the average from 2014 to 2016. There have been many developments regarding capital intensity, your SAM expansion, and market share gains. While you have been clear about not declaring a recovery in Memory, I’m curious about your thoughts on the current level of spending compared to previous lows in Memory spending when you account for increased capital intensity, SAM growth, and market share. Do you believe we are at a low point in Memory spending, or how should we interpret the situation?

One thing I'd like to highlight is that, throughout this year, I've observed that nearly all spending in Memory has been focused on conversion-related investments. This approach tends to be cost-effective for our customers as it reduces the cost per bit. I'm not sure I would characterize this as a maintenance or bottom level. However, it is an economically sensible strategy for customers. That's been the trend we've noticed this year. Additionally, your point about the increasing intensity of the Serviceable Available Market and capital spending is absolutely correct. It has become more expensive to deploy wafers due to the growing complexity of architectures, and that is a key factor to consider as well. Tim, do you have anything to add?

Yes, I believe there has been a significant change in etch and depth intensity recently. I agree with everything Doug has stated. We clearly recognize that the current spending on supply growth is not adequate to satisfy long-term demand growth. Regardless of how you refer to it, whether as a bottom or trough, it does feel like the bulk of investment is now focused on technology.

That's helpful. And then as my follow-up, I was wondering if you can just give us an update on kind of your view of the service business for this year, especially in lieu of sort of the some of the utilization cuts we've seen from customers. I know the installed base is growing, which will give a tailwind to service, but is that still expected to grow? And as you answer the question, one of your customers with the power outage this quarter, what kind of impact might that have had, either on the services or quite frankly in the shipment business?

Yes, I still expect our installed base business to grow this year. Your observation is completely accurate. This business will fluctuate somewhat with the overall utilization in the industry. It's well known that some of our Memory customers are reducing utilization to some extent, partly due to a power outage. Consequently, spares consumption will decrease for a period. Nevertheless, this business will still see growth this year, driven by an increase in chamber count. Despite the significant decline in WFE, we believe that chamber count will continue to grow this year. Therefore, the outlook for the business over the next several years remains positive.

Thank you.

Thanks, John.

Thanks so much. Doug, I guess both of my questions are for you. The first one is I'm wondering if you can update us on the comments you gave, I think on second half versus first half loading? Obviously, your full year WFE has not changed. But the mix has changed a little bit. It seems like maybe a little bit less in your favor. So can you update us on the second half versus first half of this year? Thanks.

Yeah. Tim, yeah you're right the puts and takes. We're still suggesting WFE this year is down, mid-to high teens. And within that there are puts and takes. Memory is somewhat softer than we were describing, a quarter ago. And Foundry is a little bit stronger, maybe a decent amount stronger. And when I look at the profile of that investment, the spending in Memory is somewhat first half weighted. The spending in Foundry and Logic is somewhat second half weighted. And when you put it all together, I think WFE this year will be a little bit weighted to the second half.

I guess Doug, I was more talking about your shipments, but I think you had previously guided your shipments or your revenue second half versus first half. So I'm wondering if you can update that.

No. We've never guided revenue half on half. We've always and maybe I was misinterpreted talking about WFE.

Okay, awesome. Okay and then I guess my second question Doug is you're doing $12 annualized in a pretty nasty Memory cycle systems for Memory are cut in half and total system shipments are down somewhere in the range of 14% from the peak. Obviously it's much down than really anything in the past. So I guess the question is how do you think about how to optimize the capital structure in the balance sheet as you come out of this? You have bought back a ton of stock but I'm wondering how you think about the right balance sheet leverage targets, as you look out over the next few years? Thanks.

I haven't set a specific numeric target for leverage or total cash, but our history shows a strong commitment to returning cash to shareholders. The business's cash generation remains robust, with nearly $900 million from operational cash flow in the last two quarters. Our confidence in maintaining this cash generation is significantly increased. Looking at our net cash position, we've been comfortable reducing that by taking on a bit of debt and using cash for dividends and share buybacks. We may hold an investor event in the future to discuss this further, but for now, I stand by our commitment to return at least 50% of free cash flow to shareholders, which we have consistently exceeded in recent years.

Okay Doug got it. Thanks so much.

Yeah. thanks, Tim.

Yeah. Good afternoon. And thank you for taking my question. I guess first question, can you speak to on both Foundry Logic side. Your revenue intensity at the 16, 14, 10 nodes and how we think about share gains and/or greater opportunities for you as we migrate down to seven and five? And if there's any way to kind of quantify what the incremental revenues per wafer start or any sort of math like that, that will be very helpful. Thank you.

Yeah. C.J., I'm going to let Tim actually talk about the direction. We haven't quantified it. And we're not ready to do that on the call. But Tim is pretty well versed in the trajectory. So if you can cover that.

It's great that the numbers have been clarified for me. I believe this is the first time we've expressed strong confidence in the Logic Foundry sector. Our market share has increased for various reasons, including our wins and the introduction of new applications, with share gains in the range of 10, 7, and 5. We're confident that factors like the intensity in etching and deposition, along with these new applications leading to new processes, are contributing to this growth. While we haven't put a specific figure on it, as I mentioned regarding EUV technology, each transition presents an opportunity for us to gain new applications and increase our market share. We're pleased with the progress we've achieved, even though it sometimes gets overshadowed by discussions surrounding memory and its impact on our business. Overall, we're very optimistic about our momentum in both Logic and Foundry.

That's helpful. And as my follow-up, any update on your self-cleaning etch offering? I'd love to hear about the Kiyo module coupled with Corvus. Anything you can share with us would be great.

I'm not sure what more I can share, but we see ongoing progress in the marketplace. When discussing semi-critical applications, customers are focused on optimizing the productivity of existing fabs. A key aspect of fab productivity is minimizing the frequency of maintenance required on tools. The Kiyo product, along with Corvus's self-maintaining tool, addresses this need. While spending in certain segments is low, we believe we have introduced the right product that will be well-positioned once spending in the Memory market recovers, especially for the new fabs currently under construction. Thank you.

Yeah. Hi. Thanks for taking my question. I have two of them. First one for Tim, one of the things I've been hearing is that actually going to higher and higher layers in 3D NAND, the process time for etch keeps going up. Is there a way to quantify in either absolute minutes or relative to prior nodes, what kind of increase in process times are we talking about, and what does it mean for Lam?

I don't think we're going to provide a specific quantification because it's sensitive competitive information. To your point, it does take longer to etch higher aspect ratio features, and it’s generally understood that this increase in time is non-linear with the number of layers. This non-linearity is due to the physics and chemistry of the etching process. More layers positively influence the number of etch tools necessary to carry out the etching. However, we are constantly striving to keep ownership costs reasonable for our customers by enhancing the productivity of every etch we deliver, including critical ones like the 3D hole etch. While I'm not ready to provide specific quantification today, it is a positive growth area for us.

Got it. Got it. Okay. And then as a follow-up Tim. When you start gaining more share refocus more on the semi-critical etch applications how should we think about the margin structure, because it seems like productivity is key in this segment. Is productivity a euphemism for lower price, or just trying to figure out how to think about margins and you get more share in semi-critical etch?

No. Definitely in my mind, it's not a euphemism for lower price. Productivity is in many ways is much of a technology challenges as any other. And so we're attacking productivity, we are attacking it fundamentally from equipment and hardware and process design in a way that we deliver increased productivity with the cost structure of the tool that allows us to deliver corporate average gross margins for those applications. That's our expectation. And so that sometimes takes time and will require us in many cases to think long and hard about how our tools are designed, but that is the expectation that I have for winning in that space.

Hi. Thanks for taking my question. First, I just wanted to probe a little bit about your comments on 2020. You said you think it's shaping up to be an up year, but I was wondering if you could just walk us a little bit through the puts and takes maybe both in Memory and Foundry what it would take to be an up year? And sort of what your expectations are regarding those?

Yeah, West. Too soon for us to get into specifics on this. Really the commentary around setting up for a better year next year, it's all about Memory recovering in terms of investment levels. We'll give you more color on it when we get a little closer to next year, and I'm sure a lot's going to move around in there. But as we sit here today and look at the level of investment occurring in Memory and the growth rates of bits exiting the year and whatnot, we believe the level of investment there needs to go up next year and that's the nature of the comments.

That makes sense. Considering what you mentioned about new wins and focusing on gaining market share and expanding the Serviceable Available Market, particularly with some of the Syndion line, can you provide some numbers on how much that could increase the opportunity in 2020? What does the revenue opportunity look like for you?

I think we're getting closer to our market share targets for 2021. We previously stated that we aimed to gain four to eight points of share in etch and four to eight points in deposition by 2021. We've made significant progress in our share positioning, especially in moving to semi-critical segments, and a substantial portion of that share gain is expected to come from those victories. We wanted to emphasize that we are just starting to make progress toward achieving that share gain.

Hi guys. Yeah, thanks for taking my question. I just have one extra one on focusing on the share gain potential here. So I don't expect you guys to know exactly what happened to Japan and Korea, but if you look at the etch and deposition tools you guys sell, where do you guys think you had the most opportunity to gain share against Tokyo Electron?

I'm not going to get specific, but this is why I emphasize the importance of excelling in the semi-critical sector. The critical applications are challenging to secure, and it often takes a generation or two to establish credibility. These applications are less likely to change due to short-term events. On the other hand, semi-critical or less critical applications are much more influenced by whether you can achieve a task at a specific productivity level. I believe there are several applications we aim to target where we are highly capable. If the customer is inclined to give Lam a chance, we are eager to demonstrate our capabilities. No. Nothing from my perspective that's out of the ordinary. In fact, that was why I kind of started my comments with. For the most part, given some different puts and takes the year's playing out not that differently than we had originally thought from the standpoint of moving through a down cycle in Memory.

So, operator, I think that's the end of the call. If you want to sign us off.

Thank you, everyone, for joining.