Lam Research (LRCX.US) Q1 Earnings Call: Disputes Over 4F Memory Architecture Roadmap Do Not Alter 3D Transition Benefits; WFE Spending Projected to Exceed $200 Billion in 2027

Title context: Lam Research (LRCX.US) Q1 Earnings Call: Disputes Over 4F Memory Architecture Roadmap Do Not Alter 3D Transition Benefits; WFE Spending Projected to Exceed $200 Billion in 2027 Text: Semiconductor equipment manufacturer Lam Research (LRCX.US) reported record revenue, profitability, and earnings per share for its September 2026 quarter, with demand related to artificial intelligence (AI), advanced semiconductor manufacturing, and packaging continuing to support spending on deposition and etch equipment. Chief Financial Officer Doug Bettinger said September-quarter revenue totaled $8.22 billion, up 22% quarter-over-quarter and up 54% from the same period in 2025. Gross margin was 52.4%, operating margin was 40.2%, and non-GAAP diluted earnings per share were $2.20, all record highs. According to the company, operating margin exceeded 40% for the first time. President and Chief Executive Officer Tim Archer said: "In the September quarter, the company once again achieved record revenue and profitability." He said AI-driven semiconductor demand and rising device complexity are increasing the intensity of deposition and etch processes in memory, logic, and advanced packaging applications. For the December 2026 quarter, Lam Research expects revenue of $8.6 billion, plus or minus $400 million. The company expects gross margin of 52.5%, plus or minus one percentage point; operating margin of 40.5%, plus or minus one percentage point; and earnings per share of $2.33, plus or minus $0.15. Bettinger said that without recent supply chain constraints, the December revenue outlook would have been "slightly higher." He did not quantify the impact but said shipments delayed out of the December period due to timing will shift into the March quarter. Lam Research expects calendar 2026 wafer fabrication equipment (WFE) spending to be in the mid-$150 billion range. Its preliminary forecast for 2027 is WFE spending exceeding $200 billion, with percentage growth led by DRAM, followed by advanced-node foundry logic and NAND. Archer said cleanroom availability and supply constraints for certain components could limit the industry's ability to fully meet demand in 2027. He said the company is working with suppliers to expand capacity and expects supply conditions to improve soon. Bettinger added that the company expects 10 new leading-edge fabs to come online in 2027. Based on the midpoint of the December quarter outlook, Lam Research expects calendar 2026 systems revenue to grow more than 40% year-over-year. Archer said the company expects 2026 to be its third consecutive year of outperforming the industry on WFE, driven by growth in its served available market and product share gains. Memory and Foundry Demand Drive Growth Memory accounted for 46% of September-quarter systems revenue, flat with the prior quarter; foundry accounted for 46%, up from 44% previously. Logic and other applications accounted for 8% of systems revenue. Memory systems revenue reached a record dollar level, up 120% year-over-year. NAND accounted for 26% of systems revenue, up from 23% in the June quarter, as customers continued transitioning to 256-layer and above devices. NAND revenue grew about 40% quarter-over-quarter, and the company said it has seen initial spending on 384-layer devices. DRAM revenue also set a record, with spending concentrated on technology upgrades and expansions at 1-alpha, 1-beta, and 1-gamma nodes for DDR5, LPDDR5, and high-bandwidth memory. Archer said that as DRAM architectures become increasingly three-dimensional, the company expects etch and deposition intensity to increase. The company also discussed potential incremental NAND demand related to the AI memory hierarchy. Archer said QLC NAND supports cost-effective data storage, TLC is used for higher-bandwidth context memory and key-value cache workloads, and SLC-class NAND is emerging for low-latency access in agentic AI applications. Lam Research said shifting NAND production from TLC to SLC-class devices reduces bits per device by about three times. According to the company, for every one percentage point of NAND bits that shifts to SLC-class devices, approximately 2% additional installed wafer capacity is needed to support the same bit demand. Technology Investment and Advanced Packaging Archer said foundry logic and DRAM accounted for about 80% of the company's systems revenue growth year-to-date. The company highlighted demand for its Akara etch, conductor etch, and Aether dry film photoresist products in advanced patterning applications. Lam Research said its Aether dry film photoresist solutions have demonstrated sub-10nm resolution under High-NA EUV and can reduce exposure dose by 10%. Archer said Aether products are ramping in high-volume HBM manufacturing using Low-NA EUV. The company now expects cumulative Aether-related revenue to reach approximately $2.5 billion by the end of the decade, about $1 billion higher than its previous expectation. The company also cited opportunities in backside power delivery, having secured tool-of-record wins for four products at a leading customer. In advanced packaging, Lam Research said its Syndion etch products won four new positions across multiple customers for advanced logic and HBM through-silicon via applications. Lam Research expects calendar 2026 advanced packaging revenue to grow about 70%. Archer said panel-level packaging is an emerging growth opportunity, and the company has shipped panel plating systems to more than 20 customers worldwide. The company expects its panel-level packaging market share to exceed its position in current wafer-level packaging. Regional Mix, Services, and Capital Returns China accounted for 35% of September-quarter revenue, up from 26% in the June quarter, driven by investments from domestic and multinational customers. Bettinger said China's contribution is expected to decline significantly in the December quarter, primarily due to lower revenue from domestic customers, while demand from multinational customers in the region should remain relatively strong. Korea accounted for 20% of revenue, and Taiwan, China accounted for 18%. Lam Research's Customer Support Business Group revenue was nearly $2.5 billion, a record for the fourth consecutive quarter, up 40% year-over-year. The company expects full-year 2026 CSBG revenue growth of more than 30% and 2027 growth of more than 15%. Lam Research generated record free cash flow of $3.24 billion in the September quarter. The company repurchased about $1 billion of stock and paid $325 million in dividends, returning about 41% of quarterly free cash flow to shareholders. At quarter-end, the company had $7.5 billion in cash and short-term investments, with $3 billion remaining under its authorized share repurchase program. Conference Content Host: Also note that today's event is being recorded. Now, I would like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead. Ram Ganesh, Vice President of Investor Relations, Lam Research: Thank you, and good afternoon, everyone. Welcome to Lam Research's quarterly earnings conference call. Joining me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. On today's call, we will share our overview of the business environment and review our financial results for the September 2026 quarter and our outlook for the December 2026 quarter. The news release detailing our financial results was issued shortly after 1:00 p.m. Pacific Time. It is also available, along with the accompanying presentation slides for today's call, in the Investors section of our website. Today's presentation and Q&A include forward-looking statements based on our current beliefs, expectations, and assumptions. These statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in such statements. For a discussion of factors that could cause actual results to differ materially, please refer to the risk factors in our most recent Form 10-K and Form 10-Q periodic reports and subsequent filings with the Securities and Exchange Commission, as well as the cautionary statements in the accompanying presentation slides. Unless otherwise noted, today's discussion of our financial results will be presented on a non-GAAP financial basis. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying presentation slides. This call is expected to last until 3:00 p.m. Pacific Time. A replay of this call will be available on our website later today. With that, I will turn the call over to Tim. Tim Archer, President and Chief Executive Officer, Lam Research: Thank you, Ram, and thank you all for joining today. In the September quarter, Lam once again achieved record revenue and profitability. Gross margin, operating margin, and earnings per share all set new highs, with operating margin exceeding 40% for the first time. Our performance for the year reflects the broad strength of our product portfolio and relentless focus on operational execution as AI continues to drive unprecedented semiconductor demand and increasing device complexity. Including the midpoint of our December quarter guidance, we expect calendar 2026 systems revenue to grow well over 40% year-over-year. Rising deposition and etch intensity across all device types and advanced packaging solutions continues to create a larger opportunity for Lam. Over the past several years, increasing device complexity and the push toward greater 3D scaling have driven a four-percentage-point expansion in our served available market (SAM) as a percentage of WFE. Combined with share gains from products addressing this growing SAM, we expect 2026 to mark our third consecutive year of outperforming WFE. For calendar 2026, we expect WFE in the mid-$150 billion range. Our preliminary outlook for 2027 WFE is spending exceeding $200 billion, with percentage growth led by DRAM, followed by advanced foundry logic and NAND. As we enter calendar 2027, we see cleanroom space availability and supply chain constraints for certain components continuing to limit the ability of chipmakers and equipment companies to fully meet end demand. We are actively working with suppliers to accelerate their capacity expansion plans and believe Lam is well positioned to deliver on the strong demand we see in front of us. Underpinning our WFE growth outlook is the continued rapid adoption of AI by enterprises and consumers. It has been reported that average weekly token usage has grown about 250 times over the past 18 months. As AI increasingly moves toward autonomous agentic workflows, demand for compute, memory, and storage solutions continues to expand. For example, in NAND, AI performance and economics are driving demand for multi-tier storage, with each tier optimized for different workloads. Today, QLC provides cost-effective storage for rapidly growing AI data volumes. TLC storage is used as a high-bandwidth tier for context memory and KV cache workloads. And SLC-class NAND is emerging for low-latency, high-speed access in agentic AI. We believe the adoption of an SLC storage tier could become a significant driver of NAND wafer capacity. Converting from TLC to SLC-class devices reduces bits per device by about 3x. In other words, for every one percentage point of structural mix of NAND bits that shifts to SLC-class devices, approximately 2% additional installed wafer capacity is needed to support the same bit demand. Incremental growth in bit demand would further amplify wafer capacity requirements. We expect all three storage tiers to grow, increasing the value and strategic importance of NAND. We believe Lam is best positioned to benefit from this inflection. We have the industry's largest installed base of NAND systems and a comprehensive portfolio covering all critical deposition and etch steps. Any increase in NAND bit demand, whether met through installed-base upgrades or capacity additions, will create additional demand for Lam's tools and technologies. Foundry logic and DRAM are undergoing similar device-level evolution to meet emerging AI performance requirements. From advanced patterning to backside power delivery to next-generation packaging, we expect billions of dollars of potential SAM expansion and share gains for Lam in the coming years. We are already seeing the impact of our targeted investments in foundry logic and DRAM products in our calendar 2026 results. These two segments accounted for about 80% of Lam's year-to-date systems revenue growth. A good example is our focus on advanced patterning demand in foundry logic and DRAM. As each technology node brings stricter EUV patterning fidelity and defectivity requirements, Lam's Akara etch, conductor etch, and Aether dry film photoresist tools are being used together to enable unprecedented scaling capability. Importantly, these tools also help improve DRAM scaling productivity, and maximizing fab output is a key priority for our customers today. Multiple chipmakers are adopting Akara because of its ability to etch extremely high-aspect-ratio features with superior profile control while reducing wafer-to-wafer and lot-to-lot variability by as much as 50% and increasing wafer output per fab footprint by as much as 50%. Similarly, Lam's Aether dry film photoresist solutions have demonstrated sub-10nm resolution at the highest pattern density and fidelity under High-NA EUV. It helps achieve this result while requiring 10% lower exposure dose, improving scanner productivity and reducing patterning cost per wafer. Aether solutions are already in high-volume manufacturing ramp for HBM using Low-NA EUV, and we expect more adoption opportunities ahead with DRAM and foundry logic customers. As a result, we now expect cumulative Aether-related revenue to reach approximately $2.5 billion by the end of the decade, about $1 billion higher than our previous expectation. Backside power delivery is another example of Lam's strength in deposition and etch. Separating power delivery and signal routing enables thicker backside metallization, reducing resistance and improving energy efficiency. This implementation increases process complexity, driving demand for more deposition, plating, and etch steps. As customers ramp backside power delivery at 2nm and below, our production-proven Vector, Sabre, and Flex tools are well suited for this task. Vector delivers industry-leading footprint density and wafer-to-wafer repeatability with its unique four-chamber architecture. Sabre is the global benchmark in plating with high productivity and superior on-wafer performance. Flex leverages its differentiated small-volume chamber design and confined plasma to achieve high-throughput dielectric etch with low defect levels. New materials such as molybdenum are also being introduced to enable more efficient electrical connections between the backside and frontside of the wafer. For this emerging application, our Halo tool is gaining traction, enabling both plasma and thermal processes in a single chamber while delivering industry-leading productivity. We are winning share in this expanding backside power delivery SAM opportunity and recently secured tool-of-record wins for all four products at a leading customer. In advanced packaging, our market-leading Syndion products are winning in HBM TSV applications for advanced logic. Syndion's differentiated hardware design enables fast process switching, delivering highly uniform TSV profiles, smooth sidewalls, and high-volume manufacturing productivity. Recently, we won four new application positions across multiple customers. Our Striker ALD products have also won multiple TSV liner applications based on the film's excellent step coverage and low etch rate. Beyond TSV applications, we have won additional Vector and VECTOR TEOS 3D orders for high-adhesion bonding films and chip-to-chip gap fill applications based on lower defectivity in thick film deposition. With its high deposition and etch intensity, advanced packaging has become a major growth driver for Lam. For next-generation AI and high-performance computing devices, customers are increasingly looking to panel-level packaging to achieve manufacturing scale. Our panel-level packaging portfolio continues to gain momentum in fan-out packaging, glass core substrates, and emerging substrate and interposer architectures. To date, we have shipped panel plating systems to more than 20 customers worldwide, with panel sizes ranging from 300x300mm to 600x600mm. Customers continue to choose our Kallisto platform for its differentiated coplanarity and plating uniformity performance in bumps, pillars, and redistribution layers. With the increasing adoption of glass core substrates, Kallisto is also poised to benefit from emerging through-glass via applications. Given our customer engagement, installed base, and technology leadership, we expect to achieve panel-level packaging market share that exceeds our already strong position in wafer-level packaging. Finally, turning to CSBG, we will close calendar 2026 with strong momentum, expecting full-year revenue growth of more than 30% year-over-year. That is more than double the long-term target rate we set at our last Analyst Day. Growth is broad-based across upgrades, spares, and services, driven by high fab utilization and customers' continued focus on installed-base efficiency. The value we deliver through Equipment Intelligence and Dextro Cobots recently helped us sign performance-based service contracts with multiple memory manufacturers. We expect CSBG momentum to continue in calendar 2027, with revenue growth of more than 15% year-over-year. In summary, we believe the industry is in the early stages of a multi-year investment cycle, with customer visibility extending into 2028. Increasing manufacturing complexity, new materials integration, and advanced packaging are driving rising deposition and etch intensity across device segments. Our technology leadership, growing installed base, and strategic investments in product innovation and manufacturing capacity position Lam to capture these inflections and drive continued outperformance. Thank you, and over to Rick. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Okay. Thank you, Tim Archer. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We are pleased with the continued strong execution in the September quarter, delivering our fifth consecutive quarter of record revenue, as well as record gross margin, operating margin, and earnings per share. September-quarter revenue was $8.22 billion, up 22% quarter-over-quarter and up 54% year-over-year. Deferred revenue at quarter-end was $2.66 billion, an increase of $227 million from the June quarter. The increase was primarily due to higher shipments, partially offset by lower customer prepayments. From a market segment perspective, memory systems revenue represented 46% of September-quarter revenue, flat with the prior quarter. In dollar terms, this represented a record level for memory, up 120% year-over-year. Within memory, non-volatile memory represented 26% of our systems revenue, up from 23% in the June quarter. In dollar terms, NAND revenue grew about 40% quarter-over-quarter as the industry continued to invest in the transition to 256-layer and above devices. We saw initial spending on 384-layer devices. DRAM revenue set a record, growing quarter-over-quarter in dollar terms but declining slightly as a percentage from 23% of systems revenue in the June quarter to 20% in the September quarter. DRAM spending remained concentrated on technology additions and upgrades at 1-alpha, 1-beta, and 1-gamma nodes, which enable DDR5, LPDDR5, and more importantly, high-bandwidth memory. Foundry also achieved record revenue. Its share of systems revenue rose from 44% in the June quarter to 46%. Strong performance in the quarter was driven by investments in advanced nodes, including advanced packaging, as well as mature-node spending in China. Finally, logic and other represented 8% of our systems revenue in the September quarter, slightly below 10% in the prior quarter. Most spending here was directed toward advanced process nodes. Now let me discuss the regional composition of our total revenue. China contributed 35% of revenue, up from 26% in the June quarter. We saw strong investment here from both domestic and multinational customers. In the December quarter, we expect China to represent a significantly lower percentage of our total revenue than in the September quarter. Korea's contribution to revenue in the September quarter was flat with the June quarter at 20%. Taiwan, China contributed 18% of revenue, down from 27% in the June quarter. The Customer Support Business Group achieved its fourth consecutive quarter of record revenue in the September quarter, at nearly $2.5 billion. This was up slightly from the June quarter and up 40% from the same period in 2025. Each component of CSBG was strong, as in the prior quarter. Turning to gross margin performance. The September quarter reached a record 52.4%, up from 52% in the June quarter, due to favorable customer and product mix. In addition, we continued to balance cost and pricing posture. Operating expenses in the June quarter were $1 billion, up from $916 million in the prior quarter. The increase was primarily driven by higher incentive compensation resulting from our improved profitability. We are also investing incremental resources to support growing programs such as Akara, Halo, panel form factor, and Dextro. R&D represents about two-thirds of our total operating expenses. September-quarter operating margin was 40.2%, another record, compared with 38.4% in the June quarter. The improvement reflected stronger gross margin and continued operating leverage as the business scales. The non-GAAP tax rate for the quarter was 16.5%, compared with 11% in the June quarter, in line with our expectations. The increase was primarily driven by a higher U.S. tax rate applicable to foreign earnings and an expected change in the geographic mix of revenue. We expect the tax rate to remain in this range in the December quarter and likely beyond. I recommend everyone ensure their earnings models are updated to this higher tax rate. Other income and expense in the September quarter was approximately $16 million of income, compared with $19 million of expense in the June quarter. The improvement in OI&E was due to foreign exchange fluctuations, higher interest income, and favorable performance of our venture portfolio. As we have discussed in the past, you should expect OI&E to fluctuate somewhat quarter-to-quarter due to market factors. September-quarter diluted earnings per share were a record $2.20. Diluted shares were approximately 1.26 billion, roughly flat with the June quarter. Let me turn to capital returns. We allocated approximately $1 billion to share repurchases in the September quarter and paid $325 million in dividends. During the quarter, we entered into an accelerated share repurchase structure and will continue executing it in the December quarter. We returned about 41% of free cash flow in the quarter and 59% year-to-date. I want to note that we also used $750 million this year to repay maturing debt. Our long-term plan remains to return 85% of free cash flow to shareholders. We have $3 billion remaining under our Board-authorized share repurchase program. At the end of the September quarter, our total cash and short-term investments were $7.5 billion, up from $5.6 billion at the end of the June quarter. The increase was driven by cash generated from operations, partially offset by our capital return activities and capital expenditures. Our free cash flow in the September quarter was also a record, at $3.24 billion for the quarter. As I mentioned last quarter, we have been raising cash levels slightly to support growing business volumes and capital investments in this demand growth environment. September-quarter days sales outstanding were 63 days, down from 72 days in the June quarter. Inventory totaled $4.6 billion at the end of the September quarter, up $274 million from the June quarter, as we are building inventory to meet expected future demand for our products. Despite this, inventory turns continued to strengthen to 3.4x, compared with 3x in the prior quarter. I want to note that this is the highest inventory turn level in nearly seven years. Our September-quarter non-cash expenses included approximately $115 million of stock-based compensation, $106 million of depreciation, and $16 million of amortization. September-quarter capital expenditures were $258 million, up from $189 million in the June quarter. Capital expenditures increased as we continued to add lab infrastructure and expand manufacturing facilities globally. We had approximately 24,300 regular full-time employees at the end of the September quarter, up about 1,900 from the prior quarter. Headcount growth was primarily in our factory and field teams to support expanding manufacturing activity and a growing tool installation base. We also added personnel in R&D. Let me turn to our non-GAAP guidance for the December 2026 quarter. We expect revenue of $8.6 billion, plus or minus $400 million. I want to note that this revenue guidance would have been slightly higher if not for some near-term supply chain constraints we are actively managing. We expect gross margin of 52.5%, plus or minus one percentage point. This is a slight improvement despite a headwind related to customer mix. We expect operating margin of 40.5%, plus or minus one percentage point. Finally, earnings per share of $2.33, plus or minus $0.15, based on approximately 1.253 billion shares. Let me summarize. We continued to execute our outperformance strategy, delivering another quarter of record revenue and profitability. Operating margin exceeded 40% for the first time in our history, and we are guiding it to expand slightly. We are increasing R&D investments to strengthen our already strong product portfolio. We are also investing in the infrastructure needed to support our expected future growth. These activities continue to deliver returns on invested capital comfortably above our competitors. Host, that concludes our prepared remarks. Q&A Session Host: Thank you. We will now begin the Q&A session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. If your question has been answered at any point and you would like to withdraw it, please press star then two. As a reminder, we do ask that you please limit yourself to one question and one follow-up. Today's first question comes from Timothy Arcuri of UBS Group AG. Please go ahead. Timothy Arcuri, Analyst, UBS Group AG: Thank you very much. Doug, I don't think I've ever seen a quarter where your systems business grew 35% quarter-over-quarter, so congratulations on that. You did talk about near-term constraints. I think you can see it in payables. I think payables were up about $1.3 billion. Can you give us a sense? Is it fair to say it cost you $300 million to $400 million? Let's say that cost you that in the December guide? And then do you get it back in March? Do you actually get it back? Thank you. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes, Tim, good question. I won't give a specific number. In the script, I said it would have been slightly higher. So it would have been slightly higher. Yes, Tim, if it's something we would have shipped in December, it will ship in the March quarter due to timing. Timothy Arcuri, Analyst, UBS Group AG: Okay, Doug. Can you talk about -- there was a large memory company that hosted a call today, and they talked about 4F squared. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes. Timothy Arcuri, Analyst, UBS Group AG: And they said they're going to prioritize 3D DRAM over 4F squared, and your stock is down, which is a little odd to me. It seems like people don't really understand your positioning there. So Tim, I'm wondering, maybe you can talk about that. Can you talk about how you do in a 3D world versus a 4F squared world and what you're seeing in the customer DRAM roadmaps. Thank you, Tim. Tim Archer, President and Chief Executive Officer, Lam Research: Sure. Obviously, we don't exactly know what the reaction is or why people would react that way because we've said for a long time that as all device architectures move to 3D, etch and deposition intensity goes up. Now, I would say, in some ways, it's interesting that the longer it takes to get there, the more we see momentum in some of our other scaling activities. We focused on that, even in this call -- advanced patterning. If you want to extend existing architectures and make features smaller, that's why we're starting to see a ramp in processes like Aether, processes like Akara conductor etch, which are needed to etch and create those smaller structures. I would say, in the near term, etch and deposition intensity is rising, and if we actually leapfrog from 6F squared directly to 3D DRAM, then etch and deposition intensity goes up sooner and earlier than we might have thought, which is a good thing. Timothy Arcuri, Analyst, UBS Group AG: Okay, Tim. Thank you. Tim Archer, President and Chief Executive Officer, Lam Research: Yes. Thanks, Tim. Host: Thank you. Today's next question comes from Melissa Weathers of Deutsche Bank Aktiengesellschaft. Please go ahead. Melissa Weathers, Analyst, Deutsche Bank Aktiengesellschaft: Hi. Thank you very much for taking the question. I wanted to ask about the supply constraints as well. I think you said you're working with the supply chain to make sure some of the bottlenecks are resolved. Can you give a little more detail on what actions you're taking? Would you consider any co-investment or helping with capital with those companies? What needs to happen to loosen those constraints? Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Listen, Melissa. We've been working with the supply chain to make sure they're prepared for the demand environment we see. But given how strong it's been, we're seeing some tightness. I won't specify where the tightness is, but I'll tell you we're managing it like we always do. We'll continue to do so, and it's just a little tight this quarter. I fully expect we'll manage this as effectively as anyone in the industry. If we need to make some investments, we're open to it. But frankly, many of our suppliers are well capitalized and can manage it financially on their own. I don't know, Tim, would you add anything? No, I think that's right. Tim Archer, President and Chief Executive Officer, Lam Research: For those of us who lived through the COVID shortages, this is nothing like that. We learned a lot of lessons during that period. In fact, just in the past two months, we held several large events with suppliers globally to really lay out our expectations for growth over the next several years. Where you might have issues is within our own products, as we talked about, in certain parts of our business where etch and deposition intensity is increasing, like advanced packaging, which we talked about is really a major growth driver for Lam. You might find certain suppliers seeing even faster percentage growth in our demand for them than Lam's own growth. I think we've been very clear in communicating that to those suppliers and really asking for transparency around what help they need to keep up with the pace we're pulling in the industry. I think we'll catch up soon. Melissa Weathers, Analyst, Deutsche Bank Aktiengesellschaft: Thank you. On the NAND spending cycle and the upgrade opportunity you've been talking about, you pulled forward last quarter. It's good to hear about 384-layer devices, I think you're shipping. Can you update us on where you think we are in that NAND upgrade cycle? What trends are you seeing? Maybe any forward comments on SLC and some of the new opportunities. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes, there's room left in the upgrade cycle. In fact, when you're in a high-demand period, actually taking tools offline for upgrades is sometimes a scheduling challenge for customers and for us. Tim Archer, President and Chief Executive Officer, Lam Research: I would say we're progressing on it, and we said we'd complete it in 2027. But we also pointed out that then you roll into the next upgrade cycle. Remember, that upgrade was from 128-layer to 200-layer-class devices. As you just mentioned, people are already moving into 300- and 400-layer devices. We've been engaged in R&D on those for some time. But I think what we're really trying to point out today is that while we used to just talk about layer count as the driver of Lam equipment demand and wafer capacity demand, now you're really seeing the separation of storage tiers and each device in NAND starting to become more specialized for different workloads in AI. Actually, just like it did in DRAM with HBM and bits per wafer, you're starting to see AI performance requirements begin to create demand for higher-performance, low-latency devices. I think we just had a customer talk in detail about this opportunity, which I think will drive NAND wafer capacity demand and intensity for Lam equipment. Thank you, Melissa. Melissa Weathers, Analyst, Deutsche Bank Aktiengesellschaft: Thank you. Host: Today's next question comes from Krish Sankar of TD Cowen. Please go ahead. Krish Sankar, Analyst, TD Cowen: Yes, hi. Thanks for taking my question. I have two questions. Doug or Tim, when I look at your Q4 guidance, I understand you're talking about WFE in the mid-$150 billion range, but the implied WFE for Q4 is almost around $180 billion or so. I'm just wondering, is there any onetime revenue in Q4, or is some of the price increases that front-end semiconductor equipment companies are doing affecting Q4 and making the WFE number larger? Then I have a quick follow-up. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes, Krish. No, there's nothing unique, onetime, or onetime in nature, to use your word, in the December quarter. Frankly, it's just consistent with customer demand. Like I mentioned, it would have been slightly higher if not for some supply chain constraints, but there's nothing onetime. Krish Sankar, Analyst, TD Cowen: Got it, Doug. Then just a quick follow-up. I think you mentioned in the prepared remarks that China will be significantly lower in December versus September. Wondering, can you quantify that? What would the mix look like? Because the September quarter seems like an upside surprise, with both multinational and domestic companies coming in. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes, Krish. It's not a surprise to us. It's exactly as expected. I mean, September was strong in domestic customers, but also in global multinationals. I expect December we'll be down meaningfully, driven by domestic China customers. I expect multinationals in China may continue to be relatively strong in the December quarter, but China as a percentage of revenue will be down meaningfully in the December quarter. Krish Sankar, Analyst, TD Cowen: Thank you very much, Doug. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes. Thanks, Krish. Host: Okay, today's next question comes from Harlan Sur of JPMorgan. Please go ahead. Harlan Sur, Analyst, JPMorgan: Yes, good afternoon. Thank you for taking my question. On CSBG, up 36% in the first nine months of the year, outlook of more than 30% for the full year. Very, very strong. The growth tailwinds, I assume, are higher spares from record customer utilization levels, higher sales of NAND upgrades at higher dollar values, maybe strong Reliant performance as the mature part of the market starts to recover. And then, of course, your Equipment Intelligence service offerings. Can you rank those growth drivers? And more importantly, how much higher is CSBG operating margin year-over-year? I'm just wondering if the mix and volume dynamics within CSBG are contributing to the strong overall operating margin performance. Tim Archer, President and Chief Executive Officer, Lam Research: Yes. I'll let Doug talk about the ranking of near-term financial impact, but if I rank by excitement, obviously, as we talked about, we view Equipment Intelligence, collaborative robot-driven maintenance, the performance-based service contracts we talked about as really the new part of our CSBG business that is really catching on. We're in an environment where, as someone asked earlier, people are trying to scale devices faster to get more bits or more performance. That creates intolerance for process variability, whether in process control or maintenance. That's exactly where Equipment Intelligence and collaborative robots come in. So we see a strong pull for that element, which is new for our CSBG business. I'm very excited about it becoming a bigger growth driver for us than it has been in the past. I'll let Doug talk about upgrades, spares, and everything else. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes, Harlan, we won't give you specific hard numbers for each subcomponent. However, in terms of the strength of each component, what I'll tell you is that given how strong industry utilization is, spares and services are just humming along, as you would expect. I've always said spares are the largest single component, and that remains true. But I won't specify the others. You're right in what you're implying. Given where we are in the NAND conversion/upgrade cycle, that part of the business continues to be strong. Yes, given the strength in mature-node spending, Reliant performed quite well last quarter. I expect all these trends to continue into next year. Harlan Sur, Analyst, JPMorgan: Yes, I appreciate that. As a follow-up, tight supply in advanced foundry logic is creating tightness in mature and specialty nodes, analog, power, microcontrollers. Foundry supply here is tightening very rapidly, right? It looks like mature foundry suppliers and internal IDM fabs are all adding capacity. You just said this is reflected in your Reliant business, but excluding China, do you expect this customer group to grow this year? Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Probably not meaningfully this year, Harlan. I do expect mature-node spending outside China to be strong as we go into next year, given the dynamics you just mentioned. I'm not sure it has really become pronounced in 2026 yet. Harlan Sur, Analyst, JPMorgan: Got it. Thank you. Doug Bettinger, Executive Vice President and Chief Financial Officer, Lam Research: Yes. Thanks, Harlan Sur. Host: Thank you. Today's next question comes from Srini Pajjuri of RBC Capital Markets. Please go ahead. Srini Pajjuri, Analyst, RBC Capital Markets: Thank you. Tim, I'm looking at your systems business growth. I think last year you grew 40%, and then maybe 45% this year, both well above WFE growth. Looking to next year, given your outlook of more than $200 billion, roughly 30%, let's say. I suspect you expect to outperform that market next year as well. Can you talk about what the drivers are? Is it driven by any particular end market like NAND or DRAM