KLA Corporation Common Stock Q4 2026 Earnings Call

Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June quarter 2026 earnings conference call and webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead. Welcome to the June 2026 quarterly earnings call.

I'm joined by our CEO, Rick Wallace, and our CFO, Bren Higgins. We will discuss today's results as well as our outlook, which we released after the market close and is available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non-GAAP financial basis unless otherwise specified. All full-year references we make refer to calendar years. The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results. It should also be noted that effective June the 11th, 2026, KLA completed a 10-for-one stock split. All current and prior EPS and other per share amounts referenced on this call and our materials have been adjusted to reflect the split. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings.

Any forward-looking statements, including those we make on the call today, are also subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. For any subsequent updates, please refer to KLA's IR website, which also contains investor events, presentations, corporate governance information, and links to our SEC filings. We will begin the call with Rick providing commentary on the quarter and our overall business environment, followed by Bren with financial highlights and our outlook. Now, over to Rick. Thanks, Kevin.

For the June quarter, KLA results were strong, with revenue, profitability and earnings per share all above the midpoint of guidance. Specifically, revenue reached a record $3.66 billion, supported by accelerating investment tied to AI infrastructure, continued strength in leading-edge foundry logic, and increasing process control intensity across memory and advanced packaging. These results continue to underscore KLA's market leadership and the growing strategic importance of process control as semiconductor innovation becomes more complex. The industry is in a period of accelerating investment driven by AI compute, a robust design environment, larger and more sophisticated device architectures, rising HVM adoption, and increased advanced packaging requirements. Across these inflection points, customers are relying on KLA's portfolio of systems, services, and expertise to accelerate yield learning, improve productivity, and scale new technologies into high-volume manufacturing.

KLA remains uniquely positioned on the critical path of AI infrastructure expansion, where the increasing number and sophistication of leading-edge designs that are consuming a growing percentage of new wafer starts are driving greater demand for process control. The rapid expansion of the AI ecosystem requires more advanced logic and memory, new complex manufacturing and packaging flows, and additional KLA systems and services to ramp yield and sustain high-volume production. Since our March investor day, demand signals across AI infrastructure have strengthened materially, supported by accelerating hyperscale data center investment, rising AI compute requirements, and broader adoption of AI-enabled applications. Customer engagements remain robust, visibility continues to improve, and the wafer equipment market outlook continues to expand. We expect momentum across our business to accelerate through the second half of calendar 2026 and for significant growth to continue in calendar 2027.

In highlighting KLA's unique position in the market, AI-driven design activity and HVM adoption are only part of the process control story. Process control intensity has increased due to faster product cycles, higher value wafer masks, more rigorous device performance specifications, growing design variability, and advanced packaging. We now expect our advanced packaging process control systems revenue to grow to approximately $1.1 billion in calendar 2026, up more than 70% year-over-year, above our prior expectations of high 50% growth, and almost two times faster than the advanced packaging market. Outside of our core semiconductor process control business, high-performance computing packages and integration are also driving our specialty process, PCB, and component inspection businesses, augmenting the company's growth momentum. KLA entered many of these markets in 2019 as part of the Orbotech acquisition.

Our investment thesis for the transaction was centered around the rising value of the chip package and the ability for the KLA operating model to drive product strategy, business execution to take advantage of this evolving trend. With these combined products expected to grow over 25% in calendar 2026, we are encouraged by the future opportunities in these markets. Finally, in the quarter, KLA Services delivered $820 million in revenue, up 17% year-over-year, as customers rely on KLA to maximize tool performance, productivity, and availability across a growing installed base. In summary, our June quarter results demonstrate the strength of KLA's market position and operating model execution. Looking ahead, customer engagement and demand signals continue to support expected demand.

Growth is accelerating in the second half, and we're well-positioned to execute in a strong demand environment across all segments over the remainder of calendar 2026 and into calendar 2027. With that, I'll turn the call over to Brad to discuss the quarter's financial highlights.

Thanks, Rick. KLA's June quarter results reflect strong sequential and year-over-year growth in an industry-leading profitability profile. This reinforces our market leadership and consistent execution, which is made possible by the dedication of our customer-focused global teams. Revenue of $3.66 billion was above the midpoint of guidance of $3.575 billion and rose 7% sequentially and 15% year-over-year. Non-GAAP diluted EPS was $1.5, and GAAP diluted EPS was $1.04, each at the upper end of the respective guidance ranges. Gross margin was 62.4%. This was also at the upper end of our guidance range, driven by a more favorable services mix than model and manufacturing scale that served as positive offsets to the challenging memory pricing environment and tariff headwinds. Operating expenses were $682 million and included $399 million in R&D and $283 million in SG&A. Operating margin was 43.7%. Incremental operating margin in the quarter was 59%.

Non-GAAP net income was $1.39 billion. GAAP net income was $1.36 billion. Cash flow from operations was $906 million, and free cash flow was $817 million. The company had 1.315 billion diluted weighted average shares outstanding for the quarter. The breakdown of revenue by reportable segments and end markets, and major products and regions can be found within the shareholder letter and slides. Switching to the balance sheet, KLA ended the quarter with $4.9 billion in total cash equivalents, and marketable securities, and $5.9 billion of debt. The company maintains a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies. KLA's strong cash generation continues to support meaningful capital return to shareholders. In the June quarter, free cash flow was $817 million, and KLA returned $876 million to shareholders, including $571 million in share repurchases and $305 million in dividends.

Over the past 12 months, total capital returns were $3.3 billion, and free cash flow margin was 28%. KLA has made meaningful investments in our working capital and facilities. Given the expected aggregate investment in wafer equipment over the next several years, our expectation is that these investments will continue to ensure that the company is positioned to take advantage of the strong market opportunity and deliver on our customer commitments. This consistent cash generation, combined with our disciplined approach to capital allocation, supports investment in future growth opportunities while delivering attractive returns to shareholders. The industry outlook for 2026 and 2027 continues to improve with visibility extending. Despite well-chronicled fab space limitations, we continue to see the market for wafer equipment strengthening as customers accelerate their delivery expectations across all segments.

We're raising our expectation for the wafer equipment market, including advanced packaging, to approximately the low $150 billion range in calendar 2026, up from our prior expectation of $140 billion-plus and mid-20% growth above the approximate $120 billion level in calendar 2025. Given the unprecedented visibility from customers, we continue to plan for significant growth in calendar 2027 as broad-based investment across leading-edge logic, foundry, DRAM, both conventional and HBM, NAND, and advanced packaging drives continued capacity expansion. Customer engagement remains intense with numerous new fab projects and greenfield facilities actively underway. Against this backdrop, KLA's business momentum and critical role in leading-edge process control positions us to deliver accelerating growth in the second half of calendar 2026 and continued strong growth in 2027.

High-performance computing, HBM, increasing EUV adoption in DRAM, and recently adopted advanced packaging technologies such as hybrid bonding are driving higher process control intensity across the semiconductor ecosystem. Our expectations of revenue growth acceleration in the second half of 2026 are materializing as more capacity comes online in our long lead time supply chain areas. We anticipate this resulting in second half of calendar 2026 growth for KLA over the first half to be approximately 20% and positioning the company for continued sequential growth into calendar 2027. KLA September quarter guidance is for revenue of $4 billion ± $200 million. Foundry logic revenue from semiconductor customers is forecasted to increase to approximately 73%, and memory is expected to be approximately 27% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM's expected to account for approximately 90%, with NAND representing the remaining 10%.

As a reminder, these business mix approximations pertain solely to our semiconductor customers and do not fully reflect our total semiconductor process control systems revenue. Gross margin for the September quarter is forecasted to be 62.5% ± one percentage point. While guidance is roughly flat sequentially with results, it is up 75 basis points from gross margin guidance last quarter, benefiting from operating leverage on revenue growth. Operating expenses are forecasted to be approximately $690 million in the September quarter. We will continue to prioritize next-generation product development and company infrastructure investments to support expected revenue growth over the next several years, and we anticipate these expenses to grow by roughly $15 million-$20 million sequentially over the next several quarters. Our business model is designed to deliver 40%-50% incremental operating margin leverage on revenue growth over the long run.

Other model assumptions include other income and expense net of approximately $25 million expense for the September quarter. We expect it to remain at approximately this quarterly level for the calendar year. Our planning tax rate is 14.5%, and our tax rate will vary quarter to quarter due to discrete items. For the September quarter, non-GAAP diluted EPS is expected to be $1.16 ± $0.10, and GAAP diluted EPS is expected to be $1.14 ± $0.10. EPS guidance is based on a fully diluted share count of approximately 1.312 billion shares. In conclusion, KLA enters the second half of calendar 2026 with strengthening momentum, expanding visibility, and a broader set of growth drivers across the semiconductor ecosystem.

The acceleration of AI infrastructure investment, the rising complexity of leading-edge logic and memory devices, the rapid adoption of HBM, and the increasing importance of advanced packaging are all raising the strategic value of process control. These trends reinforce KLA's critical role in helping customers accelerate yield learning, improve productivity, and ramp increasingly complex technologies into high-volume manufacturing. Our June quarter results demonstrate the strength of KLA's market position, operating model execution, and drive continued confidence in our performance moving forward. Looking ahead, customer engagement and demand signals continue to strengthen as we are adding capacity to support expected demand. Growth is accelerating in the second half of calendar 2026, and we are well positioned to execute against the expected demand environment across all segments over the remainder of calendar 2026 and into calendar 2027.

As AI-driven semiconductor complexity increases, KLA's differentiated portfolio, compounding R&D investments, growing installed base, and disciplined execution positions us to capture a larger market opportunity. As we progress toward our 2030 target model, we remain focused on supporting our customers, investing in innovation, scaling our global capabilities, and executing our proven capital allocation strategy. We believe KLA is well positioned to enable the next era of growth and to create durable shareholder value through customer collaboration, technology leadership, operational excellence, and consistent free cash flow generation. That concludes our prepared remarks. Kevin, please begin the Q&A.

Great. Thank you very much, Bren. Angela, can you please provide the instructions and start the Q&A session?

Certainly. At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two. We remind you to please unmute your line when introduced and, if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question today comes from CJ Muse with Cantor Fitzgerald. Your line is now open.

Good afternoon. Thanks for taking the question. I guess first question on gross margins. Hoping to kind of hear how you're thinking about the additional supply you're bringing on, any impact there. As you think about a greater mix shift to new tools over other, coupled with, I imagine at some point you'll be able to pass on the inflation related to memory and other components. How do you see kind of the trajectory for your gross margins into 2027 and 2028?

CJ, this is Bren. On gross margin, we're certainly starting to see some benefit from leverage in the overall model. We're still dealing with some headwinds as related to memory pricing. We've been able to secure supply, but as we've seen demand strengthen, we've been having to procure new memory at higher prices. Over the last couple of quarters or so, we thought the impact was somewhere around 100 basis points. It's probably a little bit more than that, and I think that likely continues as we move forward through 2027. We talked about 2026 overall gross margins likely being in the 62%, plus or minus. Clearly, if you look at the guidance we provided and expectations for next quarter, we're going to be above that. We feel pretty good from a trajectory point of view.

From a product point of view, as we talked about, as we introduce new products, it gives us an opportunity to make some changes to our cost structure as we deliver new capability to customers, both to reflect the new cost structure, but also pricing. We think that will start to bleed through. I would expect us to move consistent with our 60%-65% general incremental operate or incremental gross margin models as we move through 2027, given the expectation for sequential growth through the year. I think we're pretty well-positioned. We're excited about some of the leverage opportunities. New products will come out, allow us to deal with some of these cost pressures that are structural in terms of the impact, and still deliver new capability to customers.

Very helpful. I guess as a follow-up, it looks like service is on track to grow about 20% per semis, just curious how to think about 2027. Are there enough products coming off warranty and/or kind of new product and/or kind of upgrades where you can sustain double-digit growth? Would love to hear your thoughts around the drivers there.

As we talked about at Investor Day, we have a new long-term target model for service growth of 13%-15%. This year, we're right now at the bottom of that range. I would expect that to accelerate given the higher shipment levels that we're experiencing this year and into next year. I would expect we'll be operating in the range, but towards the higher end of the range as we move into next year. As you know, our service business is, because of its contract stream, 80% of the revenue is contract-based. It provides a nice anchor for the company in terms of visibility moving forward. Certainly, our customers in this environment are running their tools at very high utilization. The results matter a lot given the value of the die we're inspecting.

As we can execute our service and drive higher uptime, we can usually capture and monetize some of the value of that.

Thank you. Thank you. Our next question comes from Harlan Sur with JPMorgan.

Your line is now open.

Hey, good afternoon. Thanks for taking my question. Jim has raised their WFE outlook, I think four times this year, including today, to now sort of that low $150 billion range, so up kind of mid to high 20% range. I would think that this implies your overall business growing mid 20% range, and I assume that this implies that your process control business grows closer to 30% versus your prior view of greater than 20%. How should we think about the growth profile? I know you just talked about services. How should we think about the growth profile of your EPC business this year? You called out significant growth for next year, but do you still see WFE spending growth next year greater than the WFE growth this year?

Harlan, this is Bren. I'll start. There's a lot there. I would say first on 2026, certainly we've seen some strengthening from our customers as we've moved through the year. Schedules are holding in terms of some of the new factories that are coming online. If you go back to the beginning of the year and you're looking at Q4 opportunities, you are hedging a little bit as it relates to factory timing and so on. As a result of that, packaging has also inflected and accelerated, and that tends to be a shorter lead time business. All that contributed to the revised outlook for this year.

Given how quickly the industry turned and started to ramp, we did, as we talked about in the past, deal with some supply chain shortages as it relates to some of our longer lead time materials and how that's impacted the first half. Certainly, in the second half, we're seeing that supply come on, and we're seeing in the second half acceleration, as we talked about, 20% over the first half. I think we're pretty well-positioned to support growth expectations into next year. We talked about a higher growth rate at Investor Day, and of course, as we've gone forward, we've seen the 2026 number move up. I would say our view of 2027, there's a consensus view out there, I would say, that's somewhere in and around the $190 billion range. There are some upside or more bullish views of that.

There's not too many bearish views of different levels. As we look at it, we think that from a bottoms-up point of view, we think that assuming our peer companies can deliver to those levels, we feel pretty good about the company's ability to execute and deliver on our piece of that. Certainly, if you're in our position, given our lead times, you need to think about the more bullish scenarios in terms of ensuring we have the capacity to support that. We are thinking about it that way. I would say that more or less you're in and around $190 billion or so translates into a mid-20 type growth rate, which is similar to the growth rate in 2026.

I think we're more or less in that ballpark, and we'll see as we get closer, maybe things strengthen, and we're driving the company to ensure that we can supply and support the more bullish views that are out there.

I appreciate that. Jim has previously talked about a broadening in spending, especially in the foundry and logic space. In just over the past 90 days, we've seen, for example, Intel announce that they're pulling in their 14A production by a year, and your process control share at Intel continues to go up. Samsung just announced foundry engagements with new customers like Broadcom, for example, for 2 nanometer and 3 nanometer. You've got Rapidus and new Terafab initiatives, right? How much of the improvements that you've seen in your calendar 2026 and calendar 2027 outlook is reflective of these broadening sort of dynamics within foundry and logic?

Yeah, Harlan, it's Rick. Of course, those are factors that are driving us. As Bren mentioned, are the setup for 2027. There's no question, we said this a while ago, that the world needs more advanced logic.

There was a desire by many customers to broaden the other players outside of the leader to supply that. There's been some success in terms of their ability to bring technology online. There's such a big demand out there that this was kind of inevitable that you would see a broadening. That's certainly driving it, and I think it sets up well. I think process control intensity now is understood by the leaders, not just in advanced logic, but also we're seeing it more broadly in memory. The broadening has really been happening as we hoped it would, and is part of the reason we feel the setup is so good for next year.

Thanks, Rick. Thanks, Bren. Thanks.

Thank you. Our next question comes from Vivek Arya with Bank of America. Your line is now open.

Thanks for taking my question. For my first one, I'm curious to hear your views on competition in China. Recently, there has been more noise about more domestic competition, more in litho than there in process control. What makes the moat for process control more difficult to replicate versus other tools? Let's say if, theoretically, the Chinese memory companies, who spend the bulk of their process control WFE with local suppliers, I imagine, if, let's say, their import ban is lifted, does it mean that more of the WFE share will go to local suppliers? I'm just curious to hear your perspective on how competition from China could evolve as a share of the WFE wallet.

Yeah, thanks, Vivek. There have been a lot of players across the world, not just in China, who have tried to enter process control for a number of different reasons. I think the unique advantage that KLA has in terms of developing our products is the integration not just of the technologies for process control, but also the engagement with customers, and especially as it pertains to the leading edge. A lot of learning that happens at the leading edge then helps define the interactions that we have and also the development that we have across our portfolio. Process control is tricky to get into because it's a very high-mix, low-volume market. Unlike litho, frankly, is much higher kind of similar tool, higher volume. Process control, there's a lot of nuance.

There's also a lot of work with algorithms and development in terms of being able to help customers determine what's valuable. Add to that the 1,600, 1,700 applications engineers that KLA has worldwide, and it's a pretty good competitive moat that we've established over time. We have seen people come at the market, but our job is to continue to innovate, to provide capability, and today we continue to see whenever there's fair competition and we're allowed to compete, we do quite well.

All right. Thank you, Rick. For my follow-up, I think, Bren, you mentioned the possibility of industry expectation of 2027 WFE in the whatever, 190 plus range, that's close to 30% growth. I know it's very early, but let's say if I were to ask you to kind of rank order foundry logic versus DRAM versus NAND, how would you kind of rank order what would be the areas of growth above or below that range? What would that suggest to us about KLA's ability to take share next year? Thank you. Well, as Rick talked about earlier, we're pretty excited about the broadening of investment that's happening at the leading edge in logic.

That will drive, after a number of years of pretty high levels of efficiency in logic investment at the leading edge, that you have multiple players. I think as this year has moved on and gotten more comfort around the sustainability of additional investment beyond 2026 as it moves into 2027. We're really encouraged by that. We've talked a lot about high-bandwidth memory and how high-bandwidth memory from an intensity point of view is a unique animal for KLA, given some of the dynamics around it, both in terms of more customization in the die, the base die, the integration of each DRAM, and then the ultimate value. Performance spec's also a factor.

For all those reasons, we're seeing, even across some of our products, where we're seeing intensity levels that are rivaling what we see in advanced logic. We're encouraged by what's happening there. Obviously, there's a lot of investments happening in conventional DRAM as well, which we've seen intensity improvements, but conventional DRAM isn't the same as high-bandwidth memory DRAM in terms of its process control intensity. That's a little bit different as you size things up. One of the things that we also see into next year is a number of new fabs, you have a lot of greenfield activity, not just tech upgrades, just adding incremental bits in terms of supply, but also new tools.

We think the construct is pretty good at how it sets up for 2027, both in terms of the broadening of investment in logic, high-bandwidth memory continuing to grow, greenfield fabs, advanced packaging. We haven't really modeled in any contribution really from some of our legacy customers, I think that we're starting to see that they also are playing a role in high-performance computing. I think that potentially could be an upside factor, although not a big one for us. We think the construct is pretty strong. Our supply comes online, that should enable us to meet some of these expectations. As I said, we're building and sort of sizing the company to be able to serve the more bullish scenarios that are out there.

Thank you. Thank you. Our next question comes from Krish Sankar with TD Cowen.

Your line is now open.

Hi, thanks for taking my question. Rick or Bren, one of the large foundry customers last week raised their CapEx. Part of it was due to equipment pricing going up. To the extent you can answer, in this environment with strong demand and capacity constraints, is KLA raising prices either due to value pricing or increasing supply chain costs, especially on existing tools? If so, when are those price increases going to affect, and how to think about the impact on gross margins? I had a follow-up. I think that the question on pricing, a lot of factors go into pricing.

One is the volume, the mix of products and the other services that are available when we deal with customers. I think in general, the input prices have gone up. Customers recognize that, we have had different discussions about how KLA will help to capture some of that value so we can continue to make the R&D investments that the industry needs. We've had those discussions. As Bren pointed out, the gross margin performance is largely in line with what we anticipated, we continue to see a path forward. When we bring out new products, that's when new pricing decisions get made.

With existing products, it's a little bit more around other ways to where we can share in some of the increased value, but recognize some of the increased costs.

Krish, I'd also say that the memory headwind we're experiencing today likely continues through next year. I would expect you start to see some normalization on the pricing front that moves from a headwind to a tailwind. We feel pretty good about the pricing model I talked about, and that's inclusive of some of this pressure. A combination of being able to pass along, but also to, I think of just the incremental value of our offerings and some of the things Rick talked about. I think as we move forward, we should be able to scale the business consistent with the incremental gross margin target that I provided in the earlier question.

Got you. Thanks for the color, Bren. Then a quick follow-up. Based on your guidance of second half over 20%, it looks like you might grow your revenues in the low 20% this year on a calendar year basis. When I try to square that with what your WFE comment is, which is like low $150 billion, it looks like the runway WFE early in the year looks like $130 billion, you might probably exit at $170 billion+. When I look at your revenues over the quarter, it seems like your revenue as a percentage of WFE is pretty consistent through the year. I'm just wondering why. If process control intensity is increasing, shouldn't your revenue be outpacing WFE, or is this as simple as changing restrictions on customers, or customers with capacity constraints at the end that is limiting the upside to revenues? Thank you. I would say certainly the first half of 2026 was slower from a sequential point of view, given some of the lead time challenges we had and how that translated to the constraints around shipments.

I think an important message was that as we start to see that accelerating as we move through here in the second half of this year, that we feel like we're in a pretty good position to be able to drive sequential growth moving forward and support some of the outlook that we talked about. I think the construct as I talked about is pretty good. If you look at our SEMI-PT business, I would expect that to grow at least a few points, maybe a little more than that, faster than the overall company as it's being diluted by service growth. I think for 2027, it sets up pretty well.

Our story at Investor Day was our view that because of the dynamics of high-performance computing, now that translates into a greater percentage of semiconductor revenue over time, that the next four to five years would be as strong as the last four to five years in terms of KLA's overall market relevance. As we go over the next five years, we expect that we'll continue to execute and drive some of the strategies we talked about, and we'll see that share of market increase that's consistent with that overall view.

Thanks a lot, Bren. Thank you.

Our next question comes from Blaine Curtis with Jefferies. Your line is now open.

Hey, guys. Thanks for taking my question. I wanted to ask about, people are throwing out pretty big numbers for what the WFE TAM could be in a few years. I'm not expecting you to answer that, but I'm just curious from a supply chain perspective, how long would it take to prep for a $300 billion WFE market? Can you just talk about what space you have within your facility and timeline if you had to add any space for your supply chain?

Yeah. It's an interesting question. One of the things that we've spent a lot of time on over the last few months is meeting with some of our critical suppliers and planning and doing capacity agreements for our needs, we believe in the 2029 and beyond timeframe. That gives you a sense of how we have to think about planning to drive the capacity requirements for optical components. We're actively engaging in those discussions now and working through the economics of that. We can usually do whatever we need to from our own capacity point of view in terms of our own facilities and the headcount we need to build our systems. Really where the gating item is for us or the thing that we have to manage to think about is lead time, because it can take 12 to 24 months to put New capacity in place for those types of components.

To Blaine, because of the nature of the industry, because of the overlap and the knowledge that suppliers have of each other. If you really did have a number like that, we would see the signals, because there are others that have similar kind of lead time. We would be responsive to that. We wouldn't be the ones not able to support that.

Thanks. Just talking about visibility. I know you don't give RPO anymore. I'm just kind of curious if there's a way you could talk about it directionally. Is it improving? Maybe you can talk about your outlook visibility. How far is that extending? Is it changing? Yeah, sure.

Some of the view I talked about earlier is predicated on what's happened with backlog growth, right? The order funnel and how that translates. We're going to issue our 10-Q here as we finish the fiscal year at the end of June, in another week or so. We'd expect that the RPO, or backlog, would be about $12.5 billion. We've seen that grow pretty consistently over the last couple of quarters and would expect that given the order funnel, that we'll see that continue to grow. Part of our view of the second half and 2027 is certainly informed by our order outlook and how that translates into backlog. Hopefully that provides the color you need.

Helpful. Thank you. Thank you.

Our next question comes from Timothy Arcuri with UBS.

Thanks a lot. Bren, gross margin is being guided flat on up 10% revenue. I know you went through why that is, you're basically giving us Q4 guidance as well. December quarter guidance, it's up another 10%. What's the implied gross margin for December? December is up about the same on a quarterly basis as September. Are we talking about another flat gross margin quarter for December?

We'll see how mix plays out. Mix is the biggest factor in our gross margin quarter to quarter. As we talked about at Investor Day, we see that the gross margin is generally going to track 60%-65% towards that 63.5%, ±500 basis point view that we articulated. We'll see how it plays out. I would expect gross margins to be in this range, but it could be a little bit higher too. We'll just have to see. Like I said, it depends on the product that actually revenues. We have some big integers in some of our product types, and that tends to influence our gross margin. In terms of long-term trajectory, I think it'll be consistent with the way I articulated in an earlier question.

I guess that's my follow-up. I guess I'm a little confused as to why you can't raise prices to at least offset memory prices. I know that you're coming from a different place than others are, but even ASML is talking about raising prices on EUV. I would think you'd be able to at least offset the compute headwind, and it seems like you're struggling to do that. Is there something unique? Is there something like you don't want to anger customers, or is there some reason why you're not able to at least offset that and maybe even get proactive and move margins higher than what was in your model?

As I said earlier, we get price increases as it relates to increases in our cost structure. We deliver new capability to customers that meets their cost of ownership targets. In that time, we get a chance to assess our costs, relative to the pricing and make the adjustments we need to make. We'll continue to do that. It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders. I think we're pretty comfortable with our view. Rick talked about how we're talking to customers about some of the value opportunities that exist here. I think as we move forward, you'll continue to see pricing and then ultimately how that translates to gross margin is consistent the way that I talked about.

All right. Thanks. Thank you.

Our next question comes from Joe Quatrochi with Wells Fargo. Your line is now open.

Yeah, thanks for taking the question. I think last quarter you talked about maybe foundry logic being in the low 60% of semi PC systems for 2026. Just curious, what's the updated thought process there given the increase in WFE outlook?

I'm sorry, I missed the first part of that, Joe.

Yeah, just last quarter, I think you talked about foundry logic being low 60% of semi PC systems for 2026, and maybe memory accelerating in the second half. Just kind of curious, just given the guidance that you've provided for the mix in the 3Q, how that looks. Has that changed? Yeah, I think as we look at this year, I would say we're spot on for semi PC systems to the semiconductor customers to reflect all of our systems business.

We provided guidance here today about the expectations for the September quarter. I do expect memory to be a bigger percentage in the December quarter and likely to remain there through the first half of the year. We'll see how that plays out. As I said earlier, a lot of it depends on the timing of just revenue recognition, and what we're shipping. I would say that's the way to think about it. It more or less is playing out the way that we thought, and I would say you're probably somewhere close to 65-ish%, so I'll call it low to mid-60s as I look at 2026.

Thanks for that. Just wondering if you could talk about your lead times and how do we think about just the cadence of capacity that's coming online as we move through next year?

Lead times today across the whole company are in about the 12-month range. On certain products, it can be closer to 18 to 24 months. All our conversations today with customers are about deliveries really in the second half of 2027. We're starting to move in that direction around some of the larger products in this company. I would say that if you look across the whole company, mathematically, you're about a year. Certain products, which are strong products, can be longer than that.

Thank you. Certainly, some of that is all determined generally by the capacity that comes online, that as we have capacity and the volumes that ultimately supports, that just translates into what we can ship in certain quarters, and given the demand from certain customers, how that all maps out.

We do a lot of moving things around and juggling to meet changing customer expectations and also to ensure that we don't lose business because we can't deliver. There's some art to how we manage it. Generally, that's how to think about it.

Thank you. We'll go next to Stacy Rasgon at Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my questions. My first one, you talked about sizing your supply for the most bullish scenarios. Can you give us a little more color on what that means? If I look at some of your competitors, like AMAT suggested that they were doubling their capacity, for example. Is that how you guys are thinking about it? I realize that for you, it's not just capacity, it's also component supply and that sort of thing. Any more color you can give us on what bullish scenarios actually means in this context relative to what your competitors are doing?

No, Stacy, what I think, maybe it was a little unclear, sorry about that. What I was saying is we would be in a position to support any scenario that the industry could support, simply because we would see it coming and be able to respond. What we're doing now in terms of supporting capacity is supporting the outlook, we're having a lot of conversations with customers about their needs, there's a huge premium right now on being able to deliver to support the ramps that are going on around the industry. Then Bren can talk size of that.

Yeah. What I meant by that was, look, there's a general view of spending into next year and what that would imply. There's certainly some bullish cases. As we think about scenarios, we go, "Okay, so based on that view, what if demand was 10% higher? What if 20% was higher?" How does that then translate back into where supply would line up to that demand, and where do we need to go to work or think about adding and so on. That's what I meant is that, look. Again, it assumes that all peer companies can deliver to it because customers, it'd be great if I can deliver, but if others can't, then that's problematic. In general, we will take the cost of that flexibility in terms of ensuring our capacity exists.

I think as it relates to components, the risk of long lead time material is very low because of the value of these products, how much value they add, and the ability to sustain them, particularly with demand that's broad across different technology nodes. In the long term, certainly around certain product types, I'm willing to make bets from an inventory point of view to ensure I'm in a position to support what customers might need. That's how we think about it.

Got it. That's helpful. For my follow-up, you're effectively suggesting WFE next year somewhere in the range of, I think somebody already mentioned, around $190 billion, give or take. Your 2030 model had $215 billion, which isn't that much higher than that. I think it also had a semi market of $1.4 trillion that we seem likely to hit this year. Is there any thoughts, either qualitative or quantitative, on that 2030 model, in the wake of what we've seen over the last, certainly over the last couple of quarters of this year? How do we think about that in the context of what we're seeing now in terms of progress, Bren?

Yeah, Stacy, that's a very good point. We also couldn't have imagined some of the pricing increases that have driven up the revenue for semi this year, for example. Some of it has been price-driven. What we really were trying to do with 2030 was give a, what would the industry look like if it's growing at a high single digit for the semi industry and capital intensity continues to go along at its level and process control strengthens and we gain share. We said the caveat to that is we really don't know what it's going to build out. I think even at Investor Day, since then, things have strengthened inside the industry. We were trying to give a ballpark range of that.

I think more importantly is if you envision that the market's going to be much higher than that once we normalize for some of this pricing a little bit, then the process control intensity, we feel pretty confident about. If you have more capital required, then we would exceed the model that we laid out for 2030, and that's how that would work. We're still a long way. We only had our Investor Day in March, and here we are in July, so we're in no position to reset anything as it pertains to 2030.

I think, Stacy, what's important to take into consideration is, first of all, it turns out it's bigger, and that we've proven over time we know how to scale our business. To Rick's point is that if you think about long-term assumptions of semiconductor revenue and capital intensity rising modestly, in that model, we had in semiconductor revenue at 11% and wafer equipment at 12%. There's certainly different views of higher capital intensity, but pricing could be a factor in that. That KLA share of that overall market would grow 150 basis points plus or minus 25 basis points from where we are in 2025, and that the financial model underneath that growth would deliver the way we laid it out in terms of incremental margins and so on.

I think when you look at these target models, a lot of it is really about the credibility of, okay, how do the assumptions really look? Against those assumptions, we know we can scale our business to meet it, and that the financial model, as it has in prior Investor Day public targets and public models, we can execute the financial model consistent with what we presented.

Hey- I think that's how to think about it.

Just one more thing. Stacy, I think we're really good at creating systems that are valuable to our customers for process control and engaging with them. We are not very good at forecasting.

Got it. I think it's an unsolved problem in the industry anyways.

Thank you. We'll take our next question from Melissa Weathers with Deutsche Bank. Your line is now open.

Hi. Thank you for the question. I wanted to ask, maybe go back to that EPC side, and the Orbotech thesis that you guys had laid out years ago. It seems like that's playing out nicely, and we saw some upside in that business this quarter. Any update to how you're thinking about the longer-term growth rate of that business? I think at the Analyst Day you said mid to high single digits, if I have that right. Any updated thoughts on how you're thinking about that business?

It's pretty exciting what's happening with high-performance computing and how that's translating into opportunities both for specialty semi, which is in our process tools, but also in the Orbotech was specialty semi and PCB. In multiple PCB businesses with the transition to substrates and high-density PCBs, it's creating a lot of opportunities for us, and certainly the value of those boards is much higher in these new devices. We're encouraged by what we're seeing there. I wish I could ship more. It certainly turned on much faster than we thought. I would expect the long-term growth rate. We'll have to see how it plays out over time. I would say in the long term, the mid part of that CAGR is out.

I would say it's likely somewhere in the high single-digit range, and we'll see over several years whether there's a structural growth element that materializes in this part of the business, where this business has been historically more capacity-centric and tied to mobility, that high-performance computing is changing this market, and we'll have to see how it plays out. It is a new change and something that we're going to have to monitor. We're pretty excited about our positioning and our ability to differentiate as the board and the substrate integrates into this very valuable package.

Thank you. Maybe along those lines, the advanced packaging business specifically that I think you guys took up to $1.1 billion this year, the drivers behind that revision, is that just the TAM is growing faster, or is that market share gains? Any color on that, and then is there any incremental, like what's the incremental OpEx for those kinds of tools? Is that less R&D intensive, or how do we think about the investments that you guys are doing there?

I think the main drivers for that is the accelerated share and adoption of some of our systems that were designed for front end. It's been great to see, but it was kind of a continuation of the trend that we saw. Even our folks who were right in the middle of it were surprised by the magnitude of that. It hasn't taken a ton of R&D because It has taken some, I'm not saying it's not any, but a lot of it was leveraging the portfolio that we already had, and it was our customers pulling us into that.

If you could see the types of systems or substrates that are being leveraged now, that we were waiting, and we've been waiting for a long time for things like SOIC or hybrid bonding to drive those needs. Now we're seeing, and there's even more coming. We look at things like die-to-wafer bonding, you've got more opportunities. I think we have had to make investments, but we're extremely excited about what we've seen and the growth that it's providing for us.

On the market side, I'd say the market is accelerating. We started the year thinking the market was somewhere in around 20%. I think now we think the market is in kind of a mid to high 30s% growth rate. Of course, our business within that growing, as we said in the prepared remarks, close to 2x that. We'll see. It tends to be shorter lead time, so you have to respond quickly. Certainly what's happening on the logic front, both in traditional or in the CoWoS type packaging, but also in the hybrid bonding opportunities, which is driving the need for more capability, so higher value systems in the portfolio that we're pretty well-positioned to address these opportunities. I think that you continue to see growth in those areas as you move into next year.

Thank you. Thank you. We'll take our next question from Atif Malik with Citi.

Your line is now open.

Hi. Thank you for taking my questions. Rick, you called out the visibility of investments into 2027. What signs, if any, that it's advanced payments or deposits that you're seeing that are different from prior cycles that is giving you the confidence in sustainability of this cycle?

Well, I think it's much more our customers sharing with us the demand that they're seeing, and we have the ability to do some verification with other parties because we're involved in conversations with them. Just giving you an example of what we see for advanced compute in terms of the demand and talking to some of the players who are trying to get that capacity. We know that there's a shortage of those capabilities. It's not hard to see what's happened with memory in terms of demands and what the statements are in terms of when we think supply will resume back to equilibrium. It's a ways out. There are a lot of signs out there that these investments are going to continue at a very high rate, and a lot of the conversations we're having with customers is to be able to support those ramps.

I have very few concerns about what's going to happen in 2027. It's pretty clear that the build-out continues.

Great. One of your customers, SpaceX, and publicly Terafab, has talked about improving fab manufacturing efficiencies, cutting down steps and the cycle time and all that. I was curious if you guys are engaged on that project.

We don't talk about any specific customer engagements. You can imagine that if anybody wants to have any kind of innovation or driving new capabilities in the semiconductor industry, we're going to be along the list of the stops that they make. We don't talk about specific engagements.

Thank you. Thank you. We have time for one final question.

We'll go to Shane Brett with Morgan Stanley. Your line is now open.

Thank you for letting me ask the question. My first question is, I think there's a general understanding that process control intensity has been a bit unfavorable in 2026 as we're adding quite a bit of n plus one, n plus two nodes, like three nanometer for logic. As you think about the DRAM and leading logic node mix in 2027, do you think the process control intensity is favorable, i.e., do you see node mix as a tailwind for KLA to outgrow WFE in 2027?

Well, as I said earlier, I think the construct is pretty good. Part of the first half of the year was just, if we could have built more, we could have shipped more. We talked a lot about the reasons for that. The other thing is, I'm pretty encouraged by the leading end broad-based investment, you have a lot of new node investment, that's always good, too. You had less of that in 2026. Finally, I think in DRAM, you'll see greenfield fabs, I think that the greenfield opportunity and the retooling of those fabs creates a new opportunity as well. One of the things in DRAM, given whether it's HBM or even conventional DRAM, you can imagine that where prices are and how that translates into margins, that the value of yield is pretty high.

I think the economics line up pretty well with growing intensity or opportunities for us in 2027. Finally, packaging will continue to reflect, I expect that to be pretty strong as well. You will also see some greenfield investment in flash. While flash isn't our strongest market, would think that that would create some opportunities for us, too. Couple all that with supply availability that is better than where we are today, I feel pretty good about our ability to continue to execute against the vision we laid out at Investor Day.

Got it. For my follow-up, I totally understand KLA has been a consistent share gainer over the last decade, some of your larger competitors have talked a bit more about process control traction. Has there been any change to the competitive environment in process control? Thank you. No. No change.

If anything, we continue to feel really good about our share position in the critical markets we've been in. We're definitely seeing positive momentum in markets where we've held last year, like E-beam. We talked about the process control intensity going up in packaging. No, we don't see anything to support the idea that we're anything but net share gainers in process control over the foreseeable future.

We've gained share at a time where a number of our competitors have been able to ship into fabs in China that we haven't been able to ship into. To Rick's earlier point, where we can compete, we generally win. Even in that case where there's been some share movement, even though overall we've been able to grow our share, if we could have competed in those opportunities, I think it'd be even higher.

When we're 6x our nearest rival, I think oftentimes, in terms of overall share, that they don't necessarily get a view of the whole landscape. When they win some orders, they think they're gaining share.

Got it. Thank you very much.

Great. Thank you very much, Shane, and thank you everybody for your interest in KLA and for your participation. We look forward to seeing many of you throughout the quarter as we participate in different conferences and meetings. With that, I'll turn the call back over to Angela, the operator, to close it out.

Thank you. This concludes the KLA Corporation June quarter 2026 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.