This ranking evaluates how Fortune 500 companies are deploying AI, and how technology leaders value those investments relative to industry peers.

Fortune AIQ 75

With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

America's Most Innovative Companies

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are computers, internet services, IT services, semiconductors, and software companies.

Fortune Sector Leaders: Technology

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 25th Fortune World’s Most Admired Companies list suggests that tech giants’ peers respect them as much as ever.

World's Most Admired Companies

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

Industrials came out on top this year, with 22 companies featured on the list.

100 Fastest-Growing Companies

Just as it dominates our economy, Big Tech now dominates Fortune’s annual ranking of corporate reputation.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

Based in Milpitas, Calif., KLA produces process-control and yield-management systems for use in the making of semiconductors. Booming demand for chips helped KLA boost its revenue 27% in 2020, enabling it to land a spot on the <em>Fortune</em> 500 for the first time.

Collectively, the ranked companies produced a three-year average shareholder return of 33%, vs. 19% for the S&P 500.

This year's Fortune 500 marks the 66th running of the list.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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KLA, together with its subsidiaries, designs, makes and sells “wafer fab” equipment—essentially, tools and software for quality control and yield management in the making of semiconductors. Until July 2019, the company was known as KLA-Tencor Corporation. It has been a Fortune 500 company since 2021.

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KLA (KLAC): Company Profile, Stock Price, News, Rankings

legacy

Good afternoon, everyone. My name is Bo, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June Quarter twenty twenty five Earnings Conference Call and Webcast. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead, sir.

Welcome to the June 2025 quarterly earnings call. I am joined by our CEO, Rick Wallace and our CFO, Brent Higgins. We will discuss today's results as well as our September outlook released after the market close and 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 may refer to calendar years.

The earnings materials contain a detailed reconciliation of GAAP to non GAAP results. PLA's IR website also contains future events, presentations, corporate governance information and links to our SEC filings. 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.

Rick will start with introductory comments on the business environment and our quarter, followed by Bren with financial highlights and our outlook. Now over to Rick.

Thanks, Kevin. I'm going to cover business highlights for the June, commentary on KLA's relevance in the AI infrastructure build out. For the June, KLA's results were strong across the board and we were at or above the high end of our guidance ranges. Specifically, revenue was $3,175,000,000 non GAAP diluted EPS was $9.38 and GAAP diluted EPS was $9.06 We also had record free cash flow of over $1,000,000,000 for the quarter. Haley's leadership and process control has put the company in a unique position at the center of enabling success for our customers to build out infrastructure to support artificial intelligence.

Prioritized investment to ramp AI capabilities has fueled growth at the leading edge across the semiconductor industry through more complex designs, faster product cycles, higher value wafers and increased demand for advanced packaging. In DRAM, investments in AI have been focused on high bandwidth memory, which demands higher performance, enhanced reliability, reduced redundancy and more sophisticated logic circuitry at base die chips that control the HBM stack. Demand for leading edge logic, HBM and advanced packaging capabilities were the key contributors to KLA's performance in the June. The importance of process control continues to increase due to semiconductor scaling, new architectures and materials and increasing designs. In particular, process control can improve time to results by debugging process integration challenges in the fab ramp phase and optimizing yield across a high volume manufacturing environment with high semiconductor device design mix.

Additionally, the evolution and complexity of requirements for advanced packaging is creating new opportunities for the value of KLA's process control and process solutions. Finally, this leads to increased relevance for KLA's service business as KLA systems become more technically complex, are utilized for longer periods where they're expecting optimal tool performance and availability. To deliver solutions to meet this demand, the company leverages the KLA operating model to focus on prioritizing and productizing new innovation in our product roadmaps and ensuring that our business operations can scale and execute to capitalize on strong growth and expanded market share in the most critical markets for our customers. To date, we've seen no material changes in customer demands or on announced investment plans. As a result, our WFE assessment for 2025 is consistent with our expectations that were stated last quarter.

There are more details about this quarter's highlights in our shareholder letter, letter, but in short, KLA grew revenue 24% year over year in the June with sustained strong investment in leading edge foundry and logic and HPM. This quarter also marked another period of strong momentum for Advanced Packaging portfolio. We now expect Advanced Packaging Systems related revenue to exceed $925,000,000 in calendar twenty twenty five, up from our previous estimate of $850,000,000 last quarter and over $500,000,000 last year. In Services, our business grew to $7.00 $3,000,000 in the June, up 5% sequentially and 14% year over year. Finally, the June was strong from a cash flow and capital returns perspective.

Quarter over week free cash flow topped $1,000,000,000 for the first time, ending at $1,065,000,000 For the last twelve months, cash flow was $3,750,000,000 with a free cash flow margin of 31% over the same period. Total capital return in the June was $680,000,000 comprised of $426,000,000 in share repurchases and $254,000,000 in dividends. Total capital return over the past twelve months was $3,050,000,000 KLA's June results reaffirm our leadership in process control and the strength of our broad and differentiated portfolio. They also demonstrate the essential role KLA's products and services play in supporting semiconductor industry growth. Our consistent execution reflects the resilience of the KLA operating model, the dedication of our global teams and our disciplined capital allocation to invest in our business over the long run and maximize long term shareholder value. And with that, I'll turn the call over to Brett.

Thanks, Rick. Daly's June results were strong. Revenue was $3,175,000,000 above the guidance midpoint of 3,075,000,000.000 Non GAAP diluted EPS was $9.38 above its guidance range.

GAAP diluted EPS was $9.06 which was at the upper end of the guidance range. At the guided tax rate of 13.5%, non GAAP diluted earnings per share would have been $9 Gross margin was 63.2%, slightly above the midpoint of guidance as the quarter played out mostly as expected. Operating expenses were $6.00 $3,000,000 about $8,000,000 above the guidance midpoint. Operating expenses were comprised of $353,000,000 in R and D and $250,000,000 in SG and A. Operating margin was 44.2%.

Other income and expense net was a $23,000,000 expense with upside from guidance provided by a favorable mark to market adjustment of the strategic supplier investment. The quarterly effective tax rate was 9.9%, well below guidance as various discrete items impacted the quarter's result. Net income was $1,240,000,000 GAAP net income was $1,200,000,000 cash flow from operations was 1,160,000,000 and free cash flow was $1,060,000,000 The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides. Moving to the balance sheet, we ended with $4,500,000,000 in total cash, cash equivalents and marketable securities and debt of 5,900,000,000.0 The company has a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies. The cornerstone of KLA's business is consistent strong free cash flow generation driven by one of the best operating models in the industry and a predictable and highly differentiated service business.

This helps drive a comprehensive capital return strategy and includes consistent dividend growth and increasing share repurchases over the long term. Our recent actions emphasize our commitment to capital returns and our confidence in the long term shareholder value accretion of KLA. On 04/30/2025, we announced the sixteenth consecutive annual dividend increase, which was up 12% to $1.9 per share per quarter or an annualized dividend of $7.6 per share. Along with this action, we also announced a new $5,000,000,000 share repurchase authorization. I'll now turn to the outlook. It remains driven by increasing investment in leading edge logic, high bandwidth memory and advanced packaging. For WFE in 2025, as stated earlier, we are maintaining our original outlook for mid single digit growth in WFE from approximately $100,000,000,000 in 2024. This growth is expected to be driven principally by increasing investment in both leading edge foundry logic and memory to support growing AI and premium mobile demand, partially offset by lower overall demand from China.

Given KLA's strong business momentum, expanding market share opportunities, the higher process control intensity at the leading edge across all segments, We remain confident in our ability to outperform the overall WFE market in 2025. Finally, early customer discussions are constructive on expectations for calendar year 2026 to be a growth year for the industry. ALE's unique product portfolio differentiation and value proposition are focused on enabling technology transitions, accelerating process node capacity ramps and ensuring yield entitlement and high volume production. We continue to be encouraged that our customer discussions on product roadmaps and capacity planning have remained consistent. In this industry environment, KLA will stay focused on supporting customers, executing product roadmaps and driving productivity across the enterprise.

ALA September guidance is as follows. Total revenue is expected to be $3,150,000,000 plus or minus $150,000,000 Our quarterly revenue expectation and general stability for the remainder of the calendar year remains consistent with that articulated over the past quarters. Foundry logic revenue from semiconductor customers is forecasted to be approximately 75% and memory is expected to be approximately 25% of semi process control systems revenue to semiconductor customers. Within memory, DRAM is expected to be about 79% and NAND the remaining 21%. As always, these business mix approximations are for our semiconductor customers only and do not completely represent our aggregate process control systems revenue.

Gross margin is forecasted to be 62% plus or minus one percentage point, reflecting a slightly weaker systems revenue expectation and a 50 to 100 basis point impact from announced global tariffs. This tariff impact estimate is below our original estimate of roughly 100 basis point headwind to gross margin that we discussed last quarter. This environment is new to our industry and the long term tariff situation remains unclear. We continue to assess the impact across our business and identify potential mitigation actions to reduce our exposure to this headwind over time. We will provide periodic updates on our assessment when appropriate.

For calendar twenty twenty five, based on the results for the June, guidance for the September and our expectations for the business mix across systems and services, including the systems product mix, tariffs and factory utilization. We expect gross margins for calendar twenty twenty five to remain approximately 62.5%. Operating expenses are forecasted to be approximately $615,000,000 in the September. As we continue to make product development and infrastructure investments to support expected revenue growth. Given our expectations for company growth and product development roadmap requirements, we will maintain our operating expense trajectory.

Our business model is designed to deliver 40% to 50% incremental non GAAP operating margin leverage on revenue growth over the long run. Other model assumptions include other income and expense net of approximately a $33,000,000 expense. The non GAAP effective tax rate assumption for the September and the remainder of the calendar year is 13.5% lower than the 14% we had previously estimated based on our expectations for the geographic distribution of income. For the September, GAAP diluted EPS is expected to be $8.28 plus or minus $0.77 and non GAAP diluted EPS of $8.53 plus or minus $77 EPS guidance is based on a fully diluted share count of approximately 132,400,000.0 shares. In conclusion, our near term revenue guidance remains stable indicating the continuation of current business levels and our customer discussions support this outlook.

Based on conversations with customers, we anticipate continued solid growth in calendar twenty twenty five. Given the revenue commentary for the remainder of the calendar year, we expect to meaningfully outperform the mid single digit WFE growth rate. ALA focuses on delivering a differentiated product portfolio that addresses customer technology roadmap requirements, which are driving our longer term relevance and growth expectations. ALA's business is well positioned for the current technology inflection. While we cannot ignore the near term geopolitical trends, we are encouraged by the customer engagement that informs our business forecast.

The long term secular trends driving semiconductor industry demand and investments in WFE and advanced packaging are compelling and represent a relative performance opportunity for KLA over the next several years. That concludes our prepared remarks. Let's begin the Q and A.

Thanks, Bren. Bo, if you could please queue folks for questions.

And in the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll go first this afternoon to C. J. Muse of Cantor Fitzgerald. J.

Good afternoon. Thank you for taking the question. So I just would love to hit on your comment around early customer discussions constructed for growth in 2026. You work typically from eight plus month lead times. Obviously, you've got some visibility into '26. So we'd love to hear kind of how those conversations are going and what needs to happen to have firm conviction on growth in '26?

D. J. Hey, thanks for the question. And I think it's a little bit early for us to quantify it, but certainly we're encouraged by the discussions we're seeing. We think that as you look just across the industry based on those discussions that we'll see customers investing more.

Obviously, what's driving the space today is high performance compute and so that part of the market is strong. And we'll have to see how other end markets play out in terms of what that growth looks like. But certainly at the leading edge, we're encouraged by the activity we're seeing supported by that market. We're optimistic that we might see some broadening of investment there. DRAM continues to be strong fueled by HBM.

Flash is coming off of low levels, but I think the flash market continues to be constructive moving forward. Overall, legacy seems like it's bottomed. So I think we feel pretty good where that is. We'll see what growth looks like, but at least in terms of where it's at now, don't think it's getting worse. And then our modeling as it relates to native China activity is that it's likely somewhere in that we'll see how far down, but I think it's down after a couple of years of pretty elevated investment in 2023 and 2024.

So if you think that 2025 is down and we think 2026 is probably has some headwinds as well as that normalizes given most of the focus there is on legacy.

Just to add, as we see the continued investment in the advanced logic, as Bren mentioned, we see momentum as more and more players are bringing their design.

So you think about the sustained investment in advanced logic and then even some investment going back a node. So we're also seeing some additional so we feel really good about logicfoundry in terms of that overall momentum plus the packaging momentum we've talked about.

Very helpful. I guess on the domestic China front, talked earlier indication of lower again in 'twenty six. Curious, as three regions, Wuhan, Shanghai, Beijing are competing for supremacy and we've now gone from four to six large kind of players, How does that kind of inform your view? Does it give you a sense that things would only decline a little or a lot or just too early to tell? Thanks so much.

Yes. I think it's too early to tell at this point. As I said, we had two years of a lot of backlog we had to shift through and work off, which we have done.

And I think now that we're seeing investment from our other customers. We're seeing that drive our business outlook more strongly here moving forward. So we'll have to see as we move forward here. But my sense just in terms of looking at it bottoms up and trying to reconcile with some of the top down kind of market outlook information, I feel like it's probably got some headwinds to it in terms of the investment levels relative to '25.

Thank you. We'll go next now to Harlan Sur of JPMorgan.

Good afternoon and great job on the quarterly execution guys. Year to date, so March and June, your process control systems business, right, that's inspection and patterning. That's up 35% year over year. So it looks like you guys are setting up for another strong year of growth and maybe even more share gains. Right?

But within that, inspection is up 50% year to date, while patterning is kind of flattish, kind of similar to the profile of calendar 2024 where inspection drove most of the growth. So maybe you can just help us understand, a, the drivers of the massive strength in inspection? Is it broad based across optical, field, fair wafer, e beam? And then maybe help us understand the relatively flattish growth in patterning. And do you guys anticipate another year of total share gains in process control?

Yes. Harlan, thanks for the comments. A lot there. I'll try to unpack it a bit. I mean, certainly we've seen strong inflection in our optical pattern inspection business.

We were supply constrained in that business for some time. Now we have more supply and so we're shipping through a lot of backlog for that product and that product is well positioned and really critical for gate all around. So that's been a nice driver. Obviously, happened in Packaging has also been a nice driver for this part of the business. Sampling rates and Inspection given the challenges are very, very high.

And so that's been a nice tailwind for that part of the business as well. So Inspection has definitely been inflecting. As it relates to patterning, you have really three businesses that are in patterning. You have optical metrology, which is around overlay and then you also have film measurement, reticle inspection. And with overlay, as we've seen some slowdown in advanced litho from a customer point of view, there's an attach rate of that business to litho.

So that's reduced, I'd call it more really non consumption in that business. So that's been a little bit weaker. It's really the only business we have that has an attached to litho generally. Film Measurement, I think it's a little bit lumpy. We'd expect better than market growth out of that business as we go through the year for 2025.

And for Radical Inspection, it's a lumpy business. We have some large integers in there, but would expect to see that business grow meaningfully and in a record level for calendar 2025 versus 2024. So a little bit of just what happens in the quarter, but I think from a directional point of view, I think we'll see stronger patterning as we move through the second half of the year.

Yes. And Harlan to your point, I think overall we are seeing process process control intensity continue to rise for all the reasons we've talked about, the advanced designs, large die.

And so initially, at least a lot of that favors inspection, and Bren talked about some of the facts and patterning. And then the radical comes around. I mean for ALA, radical in 2025 is going to be a record year. So we feel good about where we are positioned there and we have more products coming along. So we feel process control intensity convincing us to strengthen and our market position is very strong.

Very insightful. Thank you for that. And yet again, you guys left your target for advanced packaging revenues from $8.50 to now 925,000,000 for calendar twenty five. That's up, like, 80% year over year. I assume it's a combination of HDM and two and a half d and three and a half d advanced packaging.

We know that many next generation two nanometer AI GPU XTU designs are targeted for this kind of 3.5 d packaging architecture, stack chips, more HBM stacks, just overall significantly more complex versus 2.5 d. But maybe you guys can just help us understand where are you guys seeing the incremental upside? I think this is like the third or fourth time that you revised your full year outlook for Advanced Packaging. So where are you guys seeing the incremental upside?

So Harlan, you touched on a lot of it. And I think it's a combination of it took us a little while to have the products that were requested. And so a little bit of that is adoption and then some momentum once we started getting going. And then just the ramp is it's all comes back to the build out associated with the infrastructure. And for us, that's the third leg.

We talked about logicfoundry, advanced designs, bigger die, talked about HBM and talked about packaging. And really, it's that part of packaging. And I think as our customers see success with our portfolio, we're gaining share. So the exciting part for us is apart from WFE dynamics, which I think we do spend an awful lot of time about, this is really outside of WFE. So we're seeing growth in packaging as a sector for inspection metrology.

Also our process position there is good. And then we're gaining share. So you have a really nice combination. And when we talk to customers, we think we're closer to the at the beginning of this trend than at the end of it. We think this is there's a lot of growth to come.

Yes, Harlan, the other thing I'd say is just if you just go back just a short period of time, let's go back a few years in 2022 as a percent of Advanced Packaging, our Semi Process Control business, given the nature of the requirements was pretty low, probably about intensity. Today we're sitting somewhere around in that 5% to 6% range. So just in a few years we've seen our position change quite dramatically as requirements to Rick's point have increased. So we're pretty excited about the growth rate and opportunity there. And we think that this continues to be a growth area as we move into next year.

Thank you. We'll go next now to Vivek Arya of Bank of America.

Thank you for taking my question. On the first one, the process control intensity in memory, I wanted to get your views on this. Historically, it used to be low closer to, I think, mature nodes. How is that process control intensity evolving as the industry is moving from traditional PDR DRAM to more high bandwidth memory? Is there a way to quantify what the benefits are to KLA because HVM is expected to be one of the fastest growth drivers in AI accelerators?

So I'm just curious to understand how your opportunity is evolving as industry migrates to HVM and then advanced versions of HVM?

Yes. So I'll give you a qualitative and Bren can do the harder thing and give you more quantitative. Qualitatively, you have more advanced, bigger, more valuable buy with more challenging circuitry in the periphery and less redundancy. So and you have a tremendous pressure coming because these are in high use and therefore these die don't rest. These are unlike the duty cycle is high.

So you've got it and they're part of an expensive system. So what our customers have said is they increased and as you know there's multiple players, they've increased the inspection both in the development but also in the build out and they're finding that they need everything they can get as to Incyte. And because these are more valuable die with less redundancy, the defectivity levels in the past that might have been acceptable are not. And so not acceptable now. So they need more coverage.

They need higher tools, plus they're introducing new technology. So everything is driving toward higher process control intensity. We've been I don't know that we've been surprised, but we've been pleased by the adoption and we think there's more demand coming as people understand the challenges. And then there are roadmap cadence that's different than the consumer cadence was. So I think from their standpoint, they're going be a lot of pressure to deliver at yield.

So that's what's happening and why this adoption is very different than memory has been in years for us. So when DRAM went to EUV, we started a pattern a couple of layers or few layers with EUV. We saw a step up in intensity. So process control intensity was somewhere around 9% to 10% of WFE back before. And then with the introduction of EUV, we saw that improve.

We saw that improve about 100 basis points. When we moved to HBM, we think that there's another 100 basis points or so of opportunity there. We'll see how that plays out over time.

But as Rick said, as the requirements have changed, it's increased the value of our products and changed how customers sample and their expectations around reliability. You also have bigger die, which benefits everyone, but I think these some of these challenges that they have around the market requirements for HBM are benefiting process control uniquely.

And so we're seeing that on the logic side, but we're also seeing that on the memory side as well. So right now when we look at it, we think there's probably another incremental 100 bps on top of that. So if you go back pre EUV to where we are today, it's probably somewhere in the neighborhood of 200 basis points of higher process control intensity. Our share position and momentum is in a pretty good place. So we're encouraged by what we're seeing.

Very helpful. And then for my follow-up on gross margins kind of near and a little more medium term. So let's say December sales are flattish, should we assume gross margins stay flattish or are there any other mix effects, etcetera, that we should keep in mind? And then kind of more medium term, what are you doing to mitigate that tariff cost pressure? Can it be mitigated?

Like when should we assume that you have some alternatives in place to get the gross margins back to the trend line? Thank you.

Yes. So the first part of your question, we talked about our views of calendar twenty five gross margin at 62.5%. So if you take Q1 and Q2 and our guidance for Q3, that will lead you to an uptick in gross margin in the fourth quarter based on our expectations now around revenue mix as of this next quarter. So that should get you there. You can do the math and figure out how to get there.

But as it relates to tariffs, there's a lot. I mean, first of all, as I said in the prepared remarks, it's a new thing for our industry. It hasn't been a factor in our business operations historically. So now as we face the likelihood of higher structural tariffs moving forward. There are some business processes as it relates to how we move parts around, how do we leverage free trade zones and things like that to reduce leakage of tariffs as it where you pay a tariff, but then you have an opportunity when you turn around to export where you can reclaim or claw back the tariff that you pay related to the export.

So there are a lot of those dynamics that are mitigating factors. Obviously, if it drives structural cost increase, then that's something that we'll have to deal with both in our service and system businesses over time just like we would with any other cost increase. But we think that there's some opportunities to go do some things on the process side where, look, we got a lot to do. The ROI wasn't all that compelling even though it might have been a better process.

Well, if you add in the economic costs of incremental tariffs, all of a sudden some of those issues rise up or opportunities rise up to priority scale.

So that's really how we're thinking about it. I think for The Street in terms of how you're modeling KLA, I think that the 50 to 100 basis point guidance headwind is probably the way to think about it. And then as I start to see either some stability or some changes in terms of how we're doing things that reduce that, I'll provide that update when appropriate. Thank you.

Thank you. We'll go next now to Shane Brett of Morgan Stanley.

Thank you for letting me ask a question. Apologies for asking a bit of a near term question, but if I'm understanding this correctly, your September foundry logic revenue is likely to strengthen sequentially, your memory revenue across both DRAM and NAND will decline. I thought that the memory mix, specifically DRAM may uptick a bit more in the second half. So just talk about the big business mix here and if we could see a memory uptick in the December? Thank you.

Yes. The way it's lining up, I think that we'll see DRAM stronger in the December than the September.

Got it. It's just really about timing of revenue, revenue recognition, those dynamics, the shipments, the final product acceptance processes that we run through that drive revenue into a particular quarter. But as I look at it and you think about some of the project timing that's out there, I would expect to see an uptick into the December.

Got it. Thank you very much. And for my follow-up, so at twenty twenty two Analyst Day, set out $14,000,000,000 revenue target for 2026, which I think was based on $125,000,000,000 WFE assumption. I think your market share gains have clearly checked above what you're probably thinking in 2022. Just could you talk about those market share gains and sort of where your kind of current assumptions are towards as we think towards 2026?

Not really asking for revenue guide, but if you can kind of give us a few crumbs on how to think about 2026? Thank you.

Well, you're right. The 2026 plan assumed WFE level in the mid-one hundred twenty range. And so we'll see whether we get there or not. But I would say for Kaylee, we don't need 01/2025 to make that plan. Given the strength that we've seen in our share of WFE, the growth rates we've seen in packaging, obviously we've had some headwinds as it relates to export control in terms of lost opportunity, but also how that's affected our service business.

But in general, we feel like we're pretty well positioned from a share of WFE point of view. We assumed a 7.25% share of WFE. If you take out Packaging, I think our share of WFE is approaching 8%, then you add in the Packaging opportunity. So we'll see. If I got WFE levels in the mid teens, I think we got a shot at it.

But I think when you consider puts and takes, we don't need as much given the growth rates we've seen in our overall share of market. Now that's been intensity driven. I mentioned packaging. We're also I think pretty confident around some of the share opportunities we also have. That's all that's part of that number.

The financial model underneath is operating very consistent. Absent the tariff effect, we'd probably be in line or maybe even slightly better on the gross margin side at that revenue level. So the rest of it is driven by our incremental operating margin model and our expectation of drop through to EPS based on business performance, but also capital structure action of EPS growth of 1.5 times our revenue growth rate. So it really is going to be predicated on where WFE ends up in terms of how we perform against that target. But the financial framework is executing as we expected.

Thank you. We go next now to Charles Hsu of Needham.

Thanks for taking my question. Maybe my first question a little bit more about China. China as a percentage of sales 26% in March, 30% in Q2. So is the 30% still the right number kind of going into the second half of the year? Or shall we kind of expect some upside?

Because the data point so far has suggested that there has been some upside in China WFE so far. But kind of wonder since you still view China WFE is coming down this year kind of want to get some thoughts there. Thanks.

Yes, Charles, and I'll try to unpack this a little bit. If you go back to earnings in January, we talked about our China business dropping to the 30% level assuming a $3 ish billion run rate and that's down from about 41% in 2024. So obviously Q1 was lower, which means that you're likely to see higher percentages as you move forward. So our we fast forward to April and the guidance in April was very consistent with that. If you look at where we sit today, I still see it at roughly 30% plus or minus.

Now the second half will be higher than the first half because you were 2630% Q2. So I think the second half is higher than the first half, but for the company overall, we're still in line with that 30% expectation plus or minus a couple of points. Now our business has strengthened. We were at $3,000,000,000 run rate. Now we just guided three fifteen.

So some of that strength has been reflected in China at a consistent percentage. So at the beginning of the year, we thought our China business would be down somewhere between 1520% overall. As I sit today, I think we're probably down somewhere between 1015% on just the general strengthening overall. So China behaving pretty much as expected and expected here to end up somewhere around 30%.

Thanks, Brent. I appreciate the color. Maybe another relatively higher level question. I answered your I listened to your answers to the questions from other analysts on this call regarding cost of control intensity. I think historically, people kind of associate or positively correlate process control intensity with lithography intensity.

I think lots of discussion on lithography intensity this year feels like the consensus is probably coming down. But I think that historical correlation kind of broken down over the past couple of years. Process control intensity actually was on the way up. Lethal probably kind of coming down if we remove any of the stockpiling in China, those kind of factors. So kind of wanted to get the sense from you guys, what do you see that the process control intensity?

Why is that correlation breaking down? And what's the outlook going forward from here? Do you expect bifurcation is kind of going to be sustaining structural or maybe we'll get a mean reversion event at some point in the down the road? Thank you.

Yes, that's an insightful question. If you go back in time and I won't go too far back, but often the process control for lithography was associated with wavelength shifts in lithography usually driven by one large manufacturer of a microprocessor. And so that was the cadence that kind of set everything. And so in those cases, you'd be going to a new design rule and you'd need new lithography, maybe the mix was different with the advance. And so you'd see intensity go up and those same drivers would be driving process control intensity to your point.

What's changed quite a bit is the dynamics associated and it started happening a few nodes ago where we saw a proliferation in advanced designs at leading edge. Because historically what you also saw was fewer people designing at the leading edge. So therefore, was pretty correlated. But around seven nanometers, we started seeing more designs happening and the design intensity around the number of designs chasing leading edge doesn't really do anything for lithography intensity. In fact, it doesn't do anything for much capital intensity except for process control intensity because you have a higher degree of variability because you have more designs going through at the leading edge.

You drive radical consumption up higher and that has been a very stable market. But more importantly, you have a very high mix fab where the variability is more and more challenged. And then you have to manage that in terms of how do you make sure you're yielding enough and not putting too many wafers in. That's all about process control. That's not about other things, not about litho.

And then add to that, the latest thing that's accelerated even further is the number of large die and associated with AI. So you have yet another driver that's doing it. On top of all that, you have what's going on in advanced packaging, which is allowing people to integrate a lot and in many ways reduces the need for other equipment, but increases the need for process control. Lastly, you have what's going on in HBM. So it's kind of a perfect transition from a if your business is process control, this is a really good time because every one of these drivers is driving the intensity and the way that customers can afford to have more processes control as they don't need as much intensity in their other parts of semiconductor manufacturing.

So you're exactly right, but it's really the proliferation of designs and the drivers around AI.

Appreciate the insights, Rick. Thank you.

Thank you. We'll go next now to Tom O'Malley with Barclays.

Hey, guys. Thanks for taking my question. When you answered the question earlier in the call on 2026, and I appreciate it's early and you don't want to give more color, you talked about the broadening of leading edge trends, and I think you were very intentional around using that word. Are you talking about additional customers coming in on the leading edge side? Or you just talking about the broadening of opportunities in the existing pillars of customers that you already have?

Both. Talking about both. We're seeing more people at the leading edge as we've talked about higher mix foundries. And for the first time, I think in quite a while, we're seeing more players doing leading edge or very close in proximity to leading edge across. So we're seeing some momentum there.

Some of that's been in the news. And as a result, what we're seeing is a broadening of customers as well as a proliferation of design. And I think it is the proliferation of design that is driving the broadening of customers.

And when you guys look out into 2016, you obviously are also thinking look at this look at the environment you just described. You talked about a lot of different areas in which process control is going to do a lot better than other areas of equipment. How are you comfortable in talking about the strength of the broader market where you're kind describing a dynamic where maybe you're taking more of the pie and obviously having more of the pie, the market may look a lot bigger. So maybe can you walk us through like what you're doing to understand what your intensity is of total WFE next year? Do you see share gains?

And maybe the market isn't as big, but you maybe have a piece of that market that's a little bit larger. How do you kind of figure that out as you look at your forecast into next year?

Well, I'll take the qualitative. Fran wants to do the quantitative part. We don't actually know exactly. What we know are what the trends are happening. And there's always been this thing about process control that kind of cuts both ways.

One is can you solve these problems? And if you could, you people would buy systems to do it. But for a long time, there were a lot of unmet needs. So people would find other ways to solve those problems because eventually they're going to figure it out. And what I mean by that, let's say you need to find a specific defect in a specific part of the process, you need to segment that process to find it. If you don't have the tools that are actually capable of doing that, customers will figure out another way around it, maybe not nearly as efficient. But so part of what's changed is we have more of those tools and part of what the reason we have that is our portfolio has been strengthened through a lot of investment over the years. And we talked about quite a while ago, the repeated application of advanced processing of our own systems using AI has given us more ability to solve those problems in conjunction with some new product offerings such as our e beam portfolio means that we can give customers a better way to manage those. So from the standpoint of that, but I don't actually think in some customers, they are figuring out dynamically how much process control they need, and it's still incumbent on us to prove the value when they introduce it. But when we say we're pretty confident going into 2026, it's because we have more and more places where customers are telling us, in some regards, they're playing back to us what we may have said to them a while ago, we know we need more process control intensity.

KLA (KLAC) Q4 2025 Earnings Call Transcript

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