Lam Research Corporation (NASDAQ:LRCX) Goldman Sachs Communacopia & Technology Conference Call September 11, 2024 11:10 AM ET
Company Participants
Doug Bettinger – Executive Vice President & Chief Financial Officer
Conference Call Participants
Toshiya Hari – Goldman Sachs
Toshiya Hari
Okay. Good morning, everyone. Thank you so much for coming. I’m Toshiya Hari. I cover the semiconductor space and the capital equipment space at Goldman Sachs. Very pleased, very excited to host Lam Research. With us this morning, we have Doug Bettinger, EVP and CFO.
Doug Bettinger
Thanks for having me.
Toshiya Hari
Before I go into questions, I’ll hand it over to Doug.
Doug Bettinger
It’s great to be here. Listen, I hope everybody got all bulled up listening to Jensen this morning because if he’s excited, I’m excited. Because you don’t get GPUs for free, you got to build them using equipment.
So, anyway, I always like to keep my lawyers happy and flash up the safe harbor. Let me read this real quick, and then we can jump into it. Today’s discussion may include forward-looking statements subject to risks and uncertainties, and actual results may differ materially. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements can be found in the risk factors disclosed in our public filings with the SEC and our 10-K and 10-Q.
Okay. We can take that down now, and we can jump into it. But all kidding aside, listen, everybody is excited about AI. And certainly, I am as well. At the end of the day, these great big accelerator chips consume a lot of wafer capacity, leading-edge wafer capacity, which drives a lot of demand for equipment. Again, all kidding aside, it is one of the things I think at the end of the day, we’re all really excited about in this industry. So, I just wanted to jump on the back of Jensen for a minute and tee that up.
So, with that, we can jump into what you want to talk about here, Toshiya.
Question-and-Answer Session
Q – Toshiya Hari
Great. Thanks, Doug. So, kicking off with your WFE market outlook, just starting off high level. On the earnings call, you reiterated your ’24 outlook in the mid $90 billion range. Just remind us what your assumptions are by device type. I know it’s early. I don’t expect the 2025 number from you today. If you’re willing, please do.
Doug Bettinger
But maybe I’ll give you a little color.
Toshiya Hari
Yeah, how are you thinking about ’25 preliminary expectations? Where do you have the best visibility, where do you have the least visibility into next year?
Doug Bettinger
Yeah, first, maybe let me unpack ’24 a little bit in terms of what we’re seeing. You’re right, our outlook is mid-$90-s billion. It did tick up a little bit as we went through the year, but that’s how we see things today.
If I unpack that by end device segment, leading-edge foundry and logic is actually pretty strong this year. I think it goes without saying everybody understands what’s going on there. It is a lot of the accelerator chips that I was talking about when I first sat down here. So, that’s driving a lot of demand for leading-edge foundry and logic. It seems pretty strong this year. I think it’s probably as strong or a little bit stronger next year, if you think about kind of ’24 to ’25, I don’t think that is going to go away anytime soon.
DRAM, pretty strong this year, partially because of the move from DDR4 to DDR5. Obviously, everybody is excited about AI. You got to be excited about high bandwidth memory. That is certainly a bright spot in terms of what’s driving DRAM spending this year. I can’t see that abating next year, right? I think DRAM is going to continue to be pretty strong. There was some level of DRAM spending in China. That was a little bit first half weighted this year. And so, that’s softening a little bit as we go through the second half here. But I think DRAM continues to be pretty strong next year.
NAND is pretty weak this year. I don’t think anybody is surprised to hear me say that, I’ve been saying it coming up on two years now. I have to believe that as we look into next year, Toshiya, it’s going to be somewhat stronger next year for NAND, right? We’re moving our way through the normal inventory cycle there. I think you’ll see next year largely driven by a lot of conversions, technology conversions, which, by the way, when that happens, we do really, really well because we are the constraint tools in a NAND fab for the most part. And so, when you go through your conversion spending, our share of wallet is actually quite high. So, I’m excited to finally see NAND spending a little bit more.
I’m not ready to give you numbers quite yet, but that’s kind of how I think about where we’re at today and likely what we’re going to see next year.
Toshiya Hari
Okay. And then, a quick follow-up. Doug, anything on the trailing edge? You talked about leading edge [indiscernible] what about trailing edge?
Doug Bettinger
Yeah, that’s a great question. Trailing edge is just kind of a tale of geographies. If you look geographically, the trailing edge in China is quite strong this year, right? You’ve got a whole bunch of customers investing strategically with an eye towards building a business like, a year or two into the future. If you look around what’s going on there, it’s analog, industrial, automotive, microcontroller, some RF stuff, some image sensors.
So, the mature node stuff in China is actually pretty strong this year. Outside of China, it’s relatively soft. I think everybody in the room, if you follow semiconductors knows we’re in the middle of an inventory cycle there in some of the industrial and automotive stuff. And so, there’s not a lot of investment occurring until the inventory clears. So that’s kind of what we see going on in the mature node spending.
Toshiya Hari
Okay. Great. Thank you. I wanted to transition to some of the big technology inflections, but before we do, again, high level. Earlier on in the year, I think you talked about or you guided us to model R&D up nicely or healthy amount. You were less sure about the revenue.
Doug Bettinger
We’re spending money this year.
Toshiya Hari
You are spending money this year, which is good, right? I mean, that’s how you maintain your competitive advantage. Curious when you sit down with Tim and your broader team, what are some of the inflections that you guys are excited about and investing in today?
Doug Bettinger
No, it’s a great question. Yeah, I mean if you follow Lam, as we came into the year, we guided, “Hey, we’re going to grow spending this year.” And we — I was unsure exactly what revenue was going to do, but we knew we were going to grow spending, because we saw some of these really quite large technology inflections ahead of us that when we looked at it and we continue to look at it, we see big opportunities that play to the strength of what we’re good at doing. And so, we felt important to make sure we’re positioning ourselves well to drive revenue growth several years into the future. So, that’s really what the thought process was. And when you look at the spending at Lam, roughly 70% goes towards R&D. So, a lot of the money we spend at this company goes into developing new products, driving innovation, trying to move us forward in some of these areas where we see large opportunities.
What are those opportunities? It’s all across the spectrum. Everybody knows gate-all-around is coming. It’s a big opportunity that plays to the strength of our selective etch capability and our ALD capability. It is a true 3D structure in foundry and logic that we’re going to do well with. We saw backside power beginning to show up, right? That plays to the strength of our metallization capability and deposition. It’s our SABRE tool. We’ve been investing in dry photoresist, which is a disruptive capability that we believe is going to be quite a large business three, four, five years into the future that we’re striving to disrupt some of the track business. There’s new metallization schemes beginning to show up in the industry, right? Tungsten is moving to molybdenum or moly, everybody sees that happening. This may be the biggest metallization change since the industry went to copper. So, when we look at all these things — and by the way, there’s a technology change in DRAM that, while still pretty far away, 3D DRAM is being worked on today.
So, when you wrap a bow around all of these things that I just kind of alluded to, it plays to the strength of things that we’re going to do in depositing films and etching high aspect ratio structures. Architectures are moving in the third dimension. I didn’t even mention advanced packaging, which is another one, which is a 3D-type structure. So, these are things we’re good at doing that require innovation, new capabilities that we felt like we just needed to make sure we were spending the right amount of money to be well positioned.
Now, I don’t want anybody to run away and think, Lam, you used to deliver a lot of leverage in the financial model, you’re not doing that anymore. We will continue to do that. It’s just this was a one-year pause, if you will, in terms of driving the financial model a little bit because we saw the need to spend a little bit more in R&D this year.
Toshiya Hari
Got it. Okay, that makes sense. I want to hit those sort of one by one, gate-all-around and backside power and leading-edge logic, you talked about selective etch, you talked about ALD. Maybe sort of talk through where your customers are in that evolution, your competitive footing in gate-all-around vis-a-vis FinFET, the opportunity set going forward?
Doug Bettinger
Sure. Let me unpack a couple of reasons. If I forget some of them, come back and ask me about it. First, gate-all-around. Yes, it is the first really true 3D structure in foundry and logic, at least, that’s the way I think about it. And when you look at developing the sheets, you need to deposit films using an ALD-type process, and you need to etch them selectively, right? You’re kind of going around the corner of things. That’s our selective etch suite of products.
When we look at this opportunity, for every 100,000 wafer starts of capacity the industry puts in place, we see an incremental opportunity for our equipment of $1 billion. Now, we won’t win all of that opportunity, but we will do well, because it plays, like I said, to the strength of things we’re good at doing. So, we’re excited about this. It’s beginning to show up now and will grow into next year. We talked about the spending on this node across all of the industry this year is delivering to us $1 billion of revenue for the entire node, not just the creation of gate-all-around structure, the whole node this year will be $1 billion in revenue for us. So, we’re excited about that, obviously. And into the future, this will get bigger. So that’s one.
Second is backside power. Now I would tell you, each customer is at a little different cadence with these things, and I’m not going to unpack which customer is where, but I see a lot of familiar faces in the room. You probably know who’s where. But likewise, for backside power, it’s about the same amount, right? It is nearly $1 billion in incremental opportunity for every 100,000 wafer starts. And so, that is beginning to show up this year. We’ll grow into the future as the whole industry goes to backside power.
Advanced packaging is another one of these $1 billion numbers that we talk about. Advanced packaging, think about the colos, think about chiplets, think about the heterogeneous integration and everybody talks about in foundry and logic and think about high-bandwidth memory. For us, advanced packaging this year, and we do it through-silicon via process steps, which is the most enabling, in my opinion, steps in the advanced packaging solution set, this would be $1 billion in revenue for us this year, growing into next year.
So, there’s a whole bunch of these things that frankly is broad in foundry and logic, it’s also showing up in memory. So, really excited about the opportunities we see in front of us.
Toshiya Hari
Got it. DRAM and HBM, again, you talked about this a little bit earlier. I realize you’re coming off a low base, but your DRAM business has grown more than 2x on a year-over-year basis, the past few quarters.
Doug Bettinger
Investments this year in DRAM is pretty strong.
Toshiya Hari
Right.
Doug Bettinger
Like I said, it’s DDR4 going to DDR5. You need DDR5 with some of these new server CPUs that are out there. And then, you got the high-bandwidth memory construct, which is a much larger die with some yield penalties as you construct that 8-die stack. And so that’s driven a lot of the spending in DRAM this year, Toshiya.
Toshiya Hari
Right. And earlier, Doug, you talked about DRAM staying strong. I don’t want to put words in your mouth, but I think you sort of said something along those lines into ’25. Is that mostly HBM, or do you see sort of conventional DRAM spending coming back as well? Or it’s a combination of both?
Doug Bettinger
It’s both.
Toshiya Hari
Okay.
Doug Bettinger
It’s both, yeah. For sure, it’s both. I mean, everybody is excited about HBM, but there’s also a product cycle in there. Like I said, DDR4 going to DDR5, you need DRAM — you need low latency DRAM to feed the AI compute engine. So…
Toshiya Hari
Got it. Okay. You mentioned 3D DRAM, I believe that’s a sort of 2029, 2030 sort of…
Doug Bettinger
Yeah, that’s the way I would have everybody thinking about it, late decade, I think, is what I would have people thinking about it, but the industry is working on it today, right? R&D is being spent today to try to figure out how to create the structure. So — but yeah, it feels like it’s late decade phenomena.
Toshiya Hari
Right. The 4F Square, the vertical transistor sort of half step or baby step, if you will, before the industry gets to 3D DRAM. Is that an opportunity for etch and dep as well, or should we not focus on…
Doug Bettinger
No, it’s an incremental opportunity. It’s not all the way to 3D DRAM. It’s a couple of nodes away still today. But yeah, the industry is working on an interim step, 6F Squared going to 4F Squared. We’ll have some very high aspect ratio structures, conductor edge structures and one of the reasons we talked about this new pulsing technology that we’re bringing out or Tim talked about that on our last earnings call, that will be quite enabling for 4F Squared.
Toshiya Hari
Got it. You mentioned NAND is very weak this year, and we all see that.
Doug Bettinger
It was pretty weak last year, too.
Toshiya Hari
It’s pretty weak for two consecutive years.
Doug Bettinger
Two years now. I think you are beginning to hear my customers talk about utilization ticking up. We saw that a little bit in the last quarter, shows up in our spares and service business. So, we’re beginning to see some indications that maybe there’s some green shoots, but there really is almost no equipment spending occurring this year.
Toshiya Hari
Got it. Okay. Longer term, again, sticking to NAND, some of your customers seem to think or believe that capital intensity is lower permanently, structurally, cycle to cycle. What are your thoughts specifically on dep and etch? And I think you did mention you guys essentially enable these upgrades. So, perhaps, you’re a little bit more agnostic to greenfield versus upgrades. So, how should we think about that?
Doug Bettinger
Yeah. I mean, the interesting thing when you look at our business is, quite honestly, for every percent bit growth, whether it’s enabled through a conversion or new wafer capacity, our revenue opportunity is the same. Because in a conversion environment, the stuff that gets converted is the equipment that deposits that stack, that is all of our equipment. It is the etch down through the structure. That’s pretty much all of our equipment. Certainly, that high-aspect ratio channel hole is all our equipment. And then, the metallization is all our equipment. That’s the stuff that needs to get upgraded in a conversion year, which is likely what you’re going to see happening next year. And so, frankly, whether new wafer capacity gets added or it’s a conversion year, we’re going to do well. And like I said, in a conversion year, our share of the spending is as high as it could be because of what I just described.
Toshiya Hari
Got it. Okay. You talked a little bit about dry resist earlier on in the session. I think it was the 2020 Analyst Day when we at least…
Doug Bettinger
Yeah, when we first started talking about it. So, we have been working on it that long.
Toshiya Hari
Of course, yeah. So, it’s been four-and-a-half years since we heard about it. What’s been sort of the general feedback from customers to the extent you’re willing to say? How many customers have already qualified your tool? Are any in HBM? How should we think about the opportunities going forward?
Doug Bettinger
Yeah. No body in HBM yet. But what I would tell you is everybody that uses EUV has our hardware in the lab evaluating what it is capable of doing. And honestly, that is pretty strong endorsement of the fact that we’ve got something of value here, right? The floor space in R&D lab of our customers is pretty valuable space, and they won’t allocate that space unless they see some compelling reason to do so. So, everybody that uses EUV is evaluating the hardware, is the first thing I would say.
There have been three DTOR decisions where the tool has been selected. Now, DTOR selection doesn’t mean you’re in production yet, but we’re pretty excited about this. We’re pretty encouraged by what we’re going to be able to do. The collaboration with ASML is very close. We’re working very closely together with them. They see the value in this. We’re collaborating with them and IMEC.
So, it perhaps has not been selected quite as quickly as we thought back in 2020, but it’s absolutely moving forward in a pretty compelling way. I had my CTO at a lunch at SEMICON and his statement was, this is a question of when, not if. And he knows this technology better than anybody at the company.
So, excited about this. I’m still describing it as $1.5 billion cumulative opportunity over a five-year horizon, but if you think about that, by the time you get to year five and six, this should be, again, delivering nearly $1 billion in revenue for the company.
Toshiya Hari
Okay.
Doug Bettinger
I like talking about $1 billion stuff, nice big round numbers. So, this eventually gets there.
Toshiya Hari
Got it. So, a slight push in timing, if you will, but the cumulative pie or the opportunity set unchanged?
Doug Bettinger
Yeah, absolutely.
Toshiya Hari
Great. Maybe talk a little bit about advanced packaging, 2.5D, 3D across high-performance computing and HBM, lots of exciting things going on there. Where is your current revenue run rate, if you could remind us? And how should we think about that going forward?
Doug Bettinger
Yes, we sell a lot of things into advanced packaging, but the real strong positions the company has is in the through-silicon via applications, if you will. That’s where you create the space to deposit the conductive material and then depositing the conductive material. I call it kind of tongue-in-cheek to drill and fill. We drill the hole and we deposit the material. We own pretty much all of that across all of the industry. It’s a tool we call Syndion, it’s our deep silicon etch. And a tool we call SABRE 3D, which is an electroplating tool that deposits the tungsten. You have this across the board in the colos process, in the chiplet stuff no matter who is doing it, and it is extremely enabling for high-bandwidth memory as well.
So, when you look at the totality of this business, it’s more than $1 billion in revenue for us this year, and that has grown quite a lot this year. Maybe — well, driven by both the chiplet foundry/logic solution set as well as high bandwidth memory. For us, when we look at high-bandwidth memory this year, what we sell into that is tripling this year. So that’s a big part of what is driving growth for us this year.
Toshiya Hari
Got it. Shifting gears a little bit. I feel like it’s hard to have a conversation with investors on semi cap or Lam Research specifically without talking about China. It’s a topic that comes up in almost every conversation.
Doug Bettinger
China has been strong this year.
Toshiya Hari
It has been. I think in the most recent quarter, China as a percentage of total came down to 39%. What are your near-term and medium-term expectations for the region? I think investors are increasingly worried that a big portion of not just your business, but the industry’s business has been pulling. To what extent do you have a gauge on how utilized or not utilized the tools are in China?
Doug Bettinger
Yeah. Let me describe China a little bit in case you haven’t heard us talk about it. It’s a broad set of customers in China. A lot of which — not all, but a lot of which I would describe as new customers. So, they’re spending with an eye towards growing a business into the future. And when you’re a new customer, you’re learning how to do things for the first time, if you will. So, not efficiently deploying capital necessarily because they’re early in the ramp of some of the technologies we’re trying to ramp. This is largely 28-nanometer and above. So, it’s not the most advanced process nodes, but also if you haven’t done it before, it’s not easy to do. But it’s a broad set of customers, is the first thing I would describe to you. It’s not one or another. There are some customers that have been around for decades, but a lot of newer customers, doing things, like I said, in industrial, automotive, analog, microcontrollers, RF, CMOS image sensors. It’s the broad set of semiconductor devices that don’t necessarily need the most advanced process technology. So, that’s the way to think about it.
China is growing this year in terms of spending in WFE. Last year, China was a little bit of a second half weighted story in terms of the profile of spending. This year, it’s a little bit first half weighted. So, as we go through the year, that percentage, you’re right, it was 39% last quarter. It will reduce as the rest of the world begins to invest a little bit more and the spending in China being a little bit first half weighted.
Now what I would describe to you is I think people get concerned, “Hey, this spending is going to go away.” It is not. I do not believe. And I say that because when we talk to this set of customers, they all have roadmaps that are many years in duration. So, the intention is clearly, I believe, for this set of customers in China to supply a lot of the demand in China with supply in China. I think that’s what they’re striving to do.
Toshiya Hari
Okay. Great. I guess given everything that we’ve sort of talked about, I’m curious how you and the broader team think about long-term WFE intensity. I think on a past 10-year lookback, it’s sort of been in the 10% to 11% range. It’s been more 13%, 14%, 15% on a three- to five-year lookback. As you think about the industry, hopefully progressing to that $1 trillion mark that we all talk about, how do you all think about industry capital intensity?
Doug Bettinger
Yeah. Listen, what I know for sure is capital intensity per wafer put in place is growing at every subsequent process node. As you go forward, it’s getting more expensive to create these structures. What do I mean? Planar went to FinFET is now going to gate-all-around, backside power is showing up. It costs more to manufacture these wafers. And I think the good thing is, when I step back and look at the industry, the whole industry is getting paid for this increasing complexity. Capital intensity, I believe, will continue to go up.
The metric I think people need to look at more than WFE per revenue dollar is WFE per profit dollar. And actually, Toshiya, if you look at that, and I know you probably have, but I’d encourage everybody in the room to go look at that, that’s not going up. Because profitability in the industry in total has gotten better than it used to be. The industry is getting paid for the innovation and the value that it’s delivering. And so, if you think about from an affordability standpoint, is this investment amount level affordable? It absolutely is.
Toshiya Hari
Okay. Great. Maybe talk a little bit about competition. Over many years, you guys have generally gained share across etch and dep. I think, the Novellus acquisition obviously was a home run.
Doug Bettinger
Timing was perfect.
Toshiya Hari
Prefect. And your CEO is from Novellus.
Doug Bettinger
That’s right. In fact, a lot of leadership team came from Novellus. At this point, it’s hard to know who came from where, frankly, because it’s, all Lam at this point.
Toshiya Hari
[indiscernible] kind of aging myself. But, yeah, so looking ahead, anything that you’re excited about from a competitiveness standpoint? I guess, part B is, a lot of talk around cryo etch. One competitor, in particular, is talking quite a big game. You guys sort of responded, I thought, on the earnings call.
Doug Bettinger
We tried to put out some of the technical merits of frankly what we’re doing. In cryo etch, there’s only one company in the industry that has anything in production, and it’s Lam Research. We’ve got 1,000 chambers of cryo etch in production today. We own all of it. So, as much as I can point to and say, we’re good at doing what we do. It doesn’t mean others don’t aspire to kind of try to get some of this business, they’re trying, but we keep moving the bar. So anyway, that’s as much as I have to say about that one.
Toshiya Hari
Okay. All right. Great. There’s no fireside chat with Doug without getting into CSBG.
Doug Bettinger
I love CSBG.
Toshiya Hari
That’s a great business. 40% of total revenue. It’s grown really nicely through cycle. Apart from your installed base growing pretty much every year, any sort of other drivers, revenue opportunity per chamber? Any initiatives at the company that could drive CSBG further?
Doug Bettinger
First, let me unpack CSBG a little bit for those of you that don’t listen to us talk every single day. CSBG at Lam is the Customer Support Business Group. It’s composed of four lines of business, if you will: spare parts, service, equipment upgrades, and the Reliant product line, which is the mature equipment that we’ve been selling for years actually at this point. You’re right, it’s — in the most recent quarter, it’s about 40% of our revenue. It is a quite profitable business because it doesn’t require a ton of research and development spending.
All the R&D is deployed upfront when the equipment is first designed and then this is just the ongoing revenue generation of the tools in the installed base. So, some of the things we’re trying to do and what I think we’ve done quite effectively is our strategic intention with this business is to grow revenue dollars faster than just the chamber count in the field. So, we give you a chamber count every year.
The important thing to understand with our equipment is it really never goes away. We honestly have equipment that’s been in the installed base for decades. And the opportunity over time is when you’re running the equipment in each spares, it can be upgraded to a next generation capability. You need to service the tool and then often, well, we used to anyway buy equipment, refurbish it and resell it. Really nobody is letting used equipment come back. And so, what we’re doing is selling new older equipment there.
And we’ve been pretty effective in growing dollars faster than just the raw chamber count through a combination of spare parts as well as advanced service offerings using AI-type capabilities to do more predictive kind of maintenance on the tools as compared to historically service in this industry was a lot about show up and do a task. We’re bringing to bear a lot of predictive-type things, which frankly is quite value-added for the customers.
Toshiya Hari
Within CSBG, your Reliant business has been soft recently.
Doug Bettinger
It has.
Toshiya Hari
How should we think about that business going forward?
Doug Bettinger
Yeah. It’s what you asked me about earlier, which is what’s going on with mature node investment. That’s substantially where the Reliant product line shows up. So, when you think about industrial, automotive, analog, that’s kind of — CMOS image sensors, it’s kind of where those products are sold into. And obviously, outside of China, that business is a little bit soft this year because of the inventory cycle that the industry is working its way through.
Toshiya Hari
Got it. Okay. I’ve got more, but I’m going to pause here and see if we have any questions from the audience. If you do, please raise your hand. We’ve got mics running around.
Doug Bettinger
It looks like you’re doing such a phenomenal job asking the question. Actually, there’s a hand.
Toshiya Hari
There’s one.
Doug Bettinger
Can we get the mic up there?
Toshiya Hari
That’s right. I was patting you on the back a little bit.
Doug Bettinger
Yeah. Here we go. We got a mic coming up.
Unidentified Analyst
Good morning. Please can I just ask, I guess, a slightly tangential question. So, on China, you’re effectively saying there’s a lot of new fabs coming online, taking equipment, it’s not leading-edge kits. And when I listen to the analog players, their answer is that they will remain very competitive in China. They’re not going to back out of China. And the secret sauce in their existing equipment keeps them ahead of the game. But is that really the case if there is a level-playing field in terms of the equipment that’s been brought in? And we’ve seen this, if you just look back historically with what happened with Huawei and Nokia and Ericsson. Nokia and Ericsson told me that there would never be a real competition from Huawei and now the kit is as good as theirs. So, in analog semis, how long before the risk with that Chinese kit is as good as?
Doug Bettinger
That’s a good question that maybe I’m not 100% qualified to answer. Listen, I think that our customer base in China is going to continue to get better as they ramp these technologies and learn how to do what they’re doing. It’s not easy, though. I would definitely say that. And I’m sure what the analog — the mature analog companies are telling you there’s truth in that. I don’t think they’re sitting still. But certainly, I think the Chinese over time are going to get better and better as they ramp technology and try to learn how to do what they’re learning how to do.
Unidentified Analyst
[indiscernible].
Doug Bettinger
I don’t think the mic is on. There you go.
Unidentified Analyst
Now it is. My question is similar on competition in China. But just in semi cap equipment, can you just map for us where you see Chinese equipment makers…
Doug Bettinger
Yeah. No, it’s a good question. There’s a handful of smaller Chinese equipment companies. They’re pretty far behind where the global leaders in the industry are at certainly where we’re at today. But there’s a set of customers also in China that we are restricted from selling to, right? The U.S. government has restricted certain customers and certain technology nodes. And so, if you’re one of those customers in China, what choice do you have, but to buy what you can buy and try to make it work as well as you can. And I think largely, when you look at some of the equipment companies in China and the growth you’ve seen from them, it’s because of that. We’re pretty far ahead technologically and we’re definitely not sitting still. And in my 30-odd years in the industry, the best technology almost always wins. And we intend that to be more often than not coming from Lam Research.
Toshiya Hari
Doug, I’m curious, do you guys use AI at all internally, whether it be designing your tools? Is AI embedded in your tools?
Doug Bettinger
Yeah, we do. Listen, some of that advanced service offering is using AI-type capabilities. Our simulation capability and what we call Semiverse Solutions is enabled by a lot of AI. We use it for process development. Actually, my CTO — my former CTO wrote a pretty cool paper that actually showed up in the magazine Nature about how we’re using AI to do some of the R&D work that we do to develop process recipes. That’s a huge area where we spend money in. We’re using it in — there’s a lot of software in our equipment. We’re using it to help with code generation like, I think everybody in the world is. So, it’s showing up all across the board, Toshiya.
Toshiya Hari
Okay. Great. Maybe in the last two minutes, I meant to ask about gross margin and capital allocation. I’ll kind of skipped those, because I think I know what you’re going to say. So…
Doug Bettinger
It’s same thing I have been saying forever.
Toshiya Hari
Anything that — you’re a well-covered company, well-covered stock, but when you talk to people like us and more importantly investors, as a collective unit, anything that we missed or underappreciate about you guys and your story?
Doug Bettinger
Listen, I think — and thank you for asking about CSBG. Often, I’ll sit through, like I’m just sit through, I don’t know, a dozen meetings today, and I know we’ll get to 80% of the meeting and no one will have asked me about the installed base business, which honestly thanks for mentioning, 40% of the revenue in the company right now and a big part of the profit generation machine. I think people underappreciate the quality of that component of the business, my perception anyway.
Toshiya Hari
Okay. Great. Thank you so much for attending, and…
Doug Bettinger
Thanks for having us.
Toshiya Hari
…congrats on everything you’re doing.
Doug Bettinger
Awesome. Thank you.
Toshiya Hari
Thanks, Doug.
Read the full article here