Good afternoon. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation September Quarter 2021 (sic) [ 2022 ] Earnings Conference Call and Webcast. [Operator Instructions] And I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Thank you, and welcome to KLA's Fiscal Q1 2022 Quarterly Earnings Call to discuss the results of the September quarter and the outlook for the December quarter. With me on today's call is Rick Wallace, our Chief Executive Officer; and Bren Higgins, our Chief Financial Officer. During this call, we will discuss quarterly results for the period ended September 30, 2021, released this afternoon after market close. You can find the press release, shareholder letter, slide deck and infographic on the KLA IR section of our website. Today's discussion is presented on a non-GAAP financial basis, unless otherwise specified. And whenever we make references to a year, we are referring to calendar years. A detailed reconciliation of GAAP to non-GAAP results is in the earnings material posted on our website. Our IR website also contains future investor events as well as presentations, corporate governance information and links to our SEC filings, including our most recent annual and quarterly reports on Forms 10-K and 10-Q. Our comments today are subject to risks and uncertainties reflected in the risk factor disclosure 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. Let me now turn the call over to our Chief Executive Officer, Rick Wallace. Rick?

Hello, and thank you for joining us today. KLA September 2021 quarter continued our track record of consistent execution and commitment to outperformance. The company's focus on delivering on top and bottom line goals remained at the forefront of how we run our business. During the quarter, revenue grew 8% sequentially and 35% year-over-year to $2.08 billion. Non-GAAP earnings per share was $4.64, representing 5% sequential growth and up 53% compared to the prior year. These results demonstrate growth momentum in our core markets and the operating leverage in the KLA financial model. Customer demand across KLA's major product groups continues as secular trends drive growth across a broad range of markets and applications in the industry. This growth is putting pressure on the semiconductor industry supply across multiple technology nodes. In parallel, leading-edge customers are increasing their strategic CapEx investments to improve their ability to address market demanding new semiconductor capabilities. Against this intense demand backdrop, we are navigating evolving customer needs and supply chain challenges. Still, KLA continues to outperform expectations by operating with purpose and precision and keeping our focus on creating value for our customers, partners and shareholders. Now turning to the industry demand environment. KLA remains in an excellent position when we look at the industry demand landscape. Strong secular growth drivers are creating important tailwinds that translate into momentum for our business. As a result, we are increasing our outlook for the wafer fab equipment, or WFE, industry. Last quarter, we estimated WFE growth would be in the mid-30s percent range. We now estimate that WFE will grow to approximately 40% in 2021. With sustained demand trends, we expect positive industry dynamics to continue into calendar 2022 and fuel another year of growth. Along with increased demand due to digitization across multiple categories, KLA's…

Thank you, Rick. KLA's quarterly results highlight the soundness and strength of our ongoing strategies. We continue to demonstrate our ability to meet customer needs in a robust demand environment while expanding market leadership, growing operating profits, generating strong free cash flow and maintaining our long-term strategy of productive capital allocation. Total quarterly revenue was $2.08 billion. Non-GAAP gross margin was 62.9% as the various components performed mostly as expected, with upside coming from the higher-than-expected Semiconductor Process Control systems revenue, which enhanced the product mix for the quarter. Non-GAAP diluted EPS was $4.64. Our performance reflected the mark-to-market of an equity position in a strategic supplier that negatively impacted non-GAAP earnings per share by $0.06. Without this adjustment, which is reflected in other income and expense on the income statement, non-GAAP earnings would have been $4.70. GAAP diluted EPS was $6.96, due primarily to a onetime tax benefit of $395 million, resulting from changes made to our international structure to better align ownership of certain intellectual property rights with how our business operates. Non-GAAP operating expenses were $432 million and included $252 million of R&D expense and $180 million of SG&A. Technical applications is a competitive advantage for KLA and drives demand for our products by helping our customers develop solutions that address their complex process challenges. Technical applications is included in SG&A and was $47 million in the quarter. The combination of R&D and technical applications represented approximately 70% of total operating expenses. Given the rapid growth of the business over the last couple of years and our revenue expectations for the business going forward, we expect the company's operating expenses to continue to grow as we invest in global infrastructure, systems to scale the KLA operating model, new product development programs and volume-dependent resources to support our…

Thank you, Bren. Ashley, can you please queue up for questions?

[Operator Instructions] We'll take our first question from John Pitzer with Credit Suisse.

Congratulations on the solid results and outlook. Rick, I'm wondering if you can talk a little bit about your optimism around the NAND market, whether it's the December guide specifically where it's moving up as a mix or in your prepared comments, you said that next calendar year is setting up for a strong year in NAND. To what extent is that just being driven by technology transitions that might be a little bit more insulated from the overall market conditions in the NAND market overall?

John, yes, thanks. It is -- for us, it is more driven by technology transitions than overall capacity. As you know, mostly, that's what drives the early adoption of our leading technologies. And what we're seeing with NAND is, NAND is as the design rules or the complexity continues, we're seeing a larger adoption of process control. As you know, the design rules aren't as advanced in NAND as they are as DRAM, but they're getting more challenging. And so that's driving larger amount of inspection requirement but also quite a bit in metrology as well. So it's really both.

John, it's Bren. I mean it is picking up off of pretty low levels, right? And I think overall, if you look at the growth of the year for the market, the NAND market grew considerably. It was growing but considerably slower than the overall market. So there's some optimism there in terms of we are seeing some tick up, although the percentage is, as I said, the absolute value is not a lot. And I think as we move into the first part of '22. I think we'll see a little bit more investment there.

That's helpful. And then as my follow-up, Bren, just going back to your commentary around OpEx, it makes sense given the opportunity ahead of you that you guys are making the investments. I'm wondering if you can just put some guardrails on growing sequentially every quarter from that $470 million level. Where might the exit trajectory be next year? And I guess, is there any flexibility around a revenue environment that might become a little bit more volatile in the second half of the year?

It's a great question, John. And we're in the middle of our strategic planning process right now and assessing not just our top line expectations but how to size the company relative to program demands, but also some of the volume dependencies that we've seen. We're also making significant investments in infrastructure. So as you got the world coming back from travel, you've got programs, you've got infrastructure investments. Those are all driving what we're seeing. We're certainly feeling pressure as most companies are, as we said in the prepared remarks, around compensation. So that's also a big part of it. I'm not going to guide '22 because we're going through that process. But what I would say is that based on how we size the company, we're going to size -- we do expect growth in the company, and we'll size the company based on our incremental margin model, which is 40% to 50% incremental operating margin leverage on revenue growth. And so that will be a driver for us. Certainly, some of this investment is a catch-up, if you will, in terms of the revenue growing so fast over the last couple of years, and it's been hard for us to catch up in terms of just being able to support the business in the way that we'd like. We're also encouraged by the growth opportunities over time, I'll call it the through cycle or normalized long-term growth, and we want to make sure the company is positioned right for that. So I have more to say about how to size it. I would say that we're going to be consistent with our long-term model. We've been way ahead of the model over 50% over the last couple of years. I would expect us to be in the target range as we think about '22. Hopefully, that helps.

And we'll take our next question from C.J. Muse with Evercore.

I guess a similar question on the gross margin side. As you think about your investments that you're making now, how should we think about the trajectory for gross margins into calendar '22? And I guess as part of that, would love to know mix-wise, what would enable you to hit the higher end or 64% in the December quarter as well?

Yes, C.J., one of the challenges, all the things I mentioned, that there is a COGS component to it. And I think one of the other challenges we're facing is pressure on cost in the in the supply chain. As I think about '22, I do see an impact from incremental costs, probably somewhere in the 75 to 100 basis point level. I do think that that's implied in the guidance that we provided. I'll have a firmer point on it as I think about '22 in the next call as we start to just lay out a more comprehensive plan around the year. But I do think we're operating in the 63% range, and I'll put a little bit wider range than I normally would today. It may be set plus or minus 75 basis points on that based on our early expectations for next year. Absent those pressures, I think we'd be very consistent with the kind of trajectory we've seen. Certainly, the mix is more process control centric given expectations for next year right now. But I do think we'll continue to operate within our longer-term expectations of trying to drive somewhere between 60% and 65% incremental. But certainly, these cost pressures are real out there. And we're trying to navigate our way through it. But I don't think it will change much from current levels in terms -- but I don't think it's going to go up much either. So I think it's -- we're going to be operating and hovering sort of in this area with mix affecting performance in any given quarter.

That's very helpful. As a follow-up, on the revenue guide for first half calendar '22, that implies roughly, I think, $50 million higher each quarter. And so curious, is there any seasonal impact we should be thinking about Orbotech lower in the March quarter? And otherwise, should we be thinking about really process control being the key driver of that uplift?

Yes, it's a good question. Right now, and again, things could change, but I don't see any seasonal impact into the first quarter. I think Process Control will be above, obviously, the high single-digit commentary. So I think we'll see process control systems higher than that in terms of the first half expectations.

And we'll take our next question from Vivek Arya with Bank of America.

On the first one, the industry is about to start making this transition to 3-nanometer. And I was hoping you could contrast what that move means for Process Control intensity, right, the move from 5 to 3 versus the change you saw when the industry moved from 7 to 5? And can this transition from 5 to 3 change the competitive landscape in any way?

Well, I think -- yes, I think the -- it's a more similar change, I think, as traditional ones because EUV has already been introduced. So what you're seeing is an increase. It's less of a revolutionary one in the sense that EUV is N5, and so you're going to see expansion of EUV layers as part of 3. So in that way, I think the mix phenomena will change towards some of the higher end tools. So for example, Gen 4 for us is significantly outselling Gen 5 in this calendar year because the bulk of the layers that could be done on a Gen 4 system. So as you move to 3, you're going to have more leverage towards a Gen 5 and -- now it turns out, we'll also be improving the capabilities on Gen 4. But I think you'll see it slightly shift. Remember, customers are always looking at the most cost-effective inspection strategy that they can have. So you're going to see it there. It will show up in metrology as well because there'll just be more points that will have to be sampled and that will drive utilization and the throughput requirements on tools. So Process Control intensity at the advanced nodes does get pushed harder, and we're definitely getting that feedback from our leading-edge customers the need for more capability and capacity to support that. So I think if anything, you're going to see a shift towards some of the higher ASP capability. At the same time, we're improving it. But in terms of a KLA market share perspective, we think it's actually positive for our market share. Because most of the time, when we have competitive situations, we tend to be in price competition at the lower end of most of the competition, and this will push things towards higher end which are the tools that we're really well positioned in and that will allow us to continue to our march towards higher market share over time.

Vivek, I could also say that in N5, you're going to have a lot of -- a high number of design starts. So you're going to see customers adding capacity in N5, which means it's much harder for them to try to migrate any of that capacity to N3. So they're going to be investing in N3, but also adding capacity in N5. So the technical drivers make that harder already based on a lot of the things that Rick just talked about, but also the design start activity, will also be a factor in that. So there's a lot of new capacity that comes in to support that node.

Very helpful. And then for my follow-up, at the risk of pushing you a little more on the calendar '22 because you were so nice to give us what you're seeing in the first half. Usually, the second half of the year -- calendar year tends to be better than the first half. So to the extent that you have visibility, right, today based on bookings and whatnot, is there any factor that could prevent that from happening next year?

Look, I'm not going to guide the second half, it's pretty far out. Yes, we have seen that phenomenon over the last couple of years play out. I would say in part of why we felt comfortable with the first half guidance is that we do have very high levels of backlog. And given the fact that the WFE number this year is clearly a supply number and not a demand number, there's certainly evidence of visibility through our customers and how they're lining up tools into the first half of the year. So we feel pretty comfortable about what we see there, hence, the guidance we provided and are driving the business and in particular, the capacity we have to be able to support long-term growth in the industry. So I'm not going to give you the second half, but I don't see any reason why things would fall off given the nature of what we're seeing and the demand and conversations we have from customers.

And we'll take our next question from Krish Sankar with Cowen and Company.

I had 2 of them. First one, Ric or Bren, it looks like your China sales have been really strong. And when I look at the industry, it looks like both you and your peers are all getting demand from a long tail of smaller customers, many of them are focused on things like IoT. So I'm kind of curious what is the split between MNC and domestic? And how durable do you think the China business from these smaller customers who seem to have cropped up recently and maybe don't have the scale, how durable do you think it is? And then I have a follow-up.

Well, just in terms of overall percentages, I would say our Semi Process Control is pretty consistent with the overall this quarter for the company. Sometimes EPC tends to be heavier weighted to China and does pull the overall company up a little bit. But this quarter, it's pretty close. It does tend to be lumpier. So I think overall, if you look at the business, we probably expect overall China to be somewhere around in the low 20s as a percent for calendar year '21. Above that, I would say, 15% or so, maybe 20% is multinational. So 80% of that would be native.

And the second part of that, when it comes to sustainability, these are, to your point, they're smaller scale, but they're also lagging in terms of when people would think about leading-edge technologies. They're not leading edge, they're supporting domestic demand. And if you think about the EV industry, for example, the car, there's quite a bit of activity in China around that. So they're trying to have more control over their own supply chain for those trailing edge parts. So it's actually quite sustainable when you look at the amount of demand there is for specialty semiconductors in the China market. So I think that that's something that you'll continue to see, and it's a long way away from some of the concerns people have about leading edge in China.

I guess the final point on that also is that when you think about our business, we do have exposure to wafer into mask. And so if you look at what's going on in terms of domestic capacity for infrastructure to support the semiconductor business, we do have some exposure to that overall.

Got it. Super helpful, Rick and Bren. And then a quick follow-up. Just wanted to see what is the status on the e-beam tools? I remember last quarter, it was about 15 or so tools in the field. Can you give us a status update on that? And where do you think your market share is today on e-beams?

Well, I don't know if things have changed all that much. I mean, certainly, we're confident in the product road map that we have for e-beam. And I think it's complementary with our optical tools. Now when we say e-beam, it's a broad term. It covers not just metrology but also inspection and review. So there's a lot of efforts that are happening across the company, including in reticle inspection. But we -- our strategy around EBI, which is I think you're referring to, inspection, is really to try to leverage and use the EBI technology and the machine learning that we have to drive the inspectors and add more value or more relevancy to the inspection tools. So it's more of a portfolio strategy than a point product strategy. And I think it's going pretty consistent with our overall expectations today.

Yes. I would just add to that. I think the team has done an outstanding job of developing this capability and delivering it. We're getting very positive feedback from our customers. They really like the idea of some of the capabilities. They also like the leverage that we have between some of the algorithms we've developed in our other systems that they're familiar with being able to apply those to e-beam and also as Bren said the interoperability. So where we are anticipated and planned from a revenue standpoint on these, there are really multiple applications, which we're serving with e-beam. So we feel very good. But just as an overall cautionary reminder, e-beam as a percent of optical wafer inspection continues to be right about where it's been for the last 20 years, and we know that. We're providing this capability because there are some special applications where customers need it. And there are actually some expansion opportunities in things like some of the increased demands of overlay that require more people are looking at for e-beam in order to control the very advanced design rules. So it's meeting what we plan. We're happy with our execution and the market share is climbing, but it's a long haul to gain share in many of these markets, and we know that.

We'll take our next question from Joe Moore with Morgan Stanley.

I wonder if you could just talk about the mix this year in foundry logic seems to have shifted more to the legacy nodes a little bit or at least those are stronger than they've been. Can you talk about maybe where that mix is? I think you've given that sort of qualitative color on that in the past. And what does that do for KLA? Does that sort of a headwind for you relative to WFE? Or -- and if that rolls off, could it help you the other direction?

Yes. No, it's interesting this year. I think last year it was a little bit more heavy in trailing edge. In '21, it's been very leading edge-centric for our business. And I think '22 probably expands a little bit more in terms of the trailing edge. So it's about 20% to 25% of our foundry revenue, I'd classify as below 28-nanometer. And so I'd call that leading edge. And so 28 and above is about 25% or so. So 75% is below 28. And I think as we go into next year, I think we'll see a little bit more of the trailing edge activities.

One of the things that it's done for us, I mean, versus, I think, if you go back long enough, we have a Gen 5 and Gen 4 we talked about in detail. We also have different variants of BBP, which are even more suitable to some of the lower end. And those customers often are familiar with the higher-end tools, and they want some of that capability. So we're seeing that these products actually run a little bit longer than they ever had. And so we have another product we call the C205, which is targeted for the auto industry, and we're able to sell that, and we're seeing that it really leverages a lot of the R&D that we've done for years. So the platform, even -- we talked about a portfolio of products, but the truth is we have a portfolio of BBP products. And it is not just across the different technologies, it's one technology across the different generations. And we're really leveraging that. So what's really surprising when we look at it is that Gen 5, while it's doing quite well, it's actually one of the smaller -- relative to the Gen 4, it's significantly smaller in dollar volume this year, and that will grow over time, which makes us feel really good about the sustainability and the overall potential for us to continue to be able to invest and provide capability for our customers across all nodes. So it's pretty exciting to see.

And we'll take our next question from Joe Quatrochi with Wells Fargo.

You talked about the increase in your manufacturing capacity, but how do we think about the ability of your supplier partners capacity to grow in order to support your growth, given some of your components, I know are several months for lead times?

Yes. It's a great question, Joe. When I say capacity, I mean people, parts and space. So I am covering all of those things. Certainly, supply chain tends to be the longest pole in the tent, if you will, in terms of our ability to add capability. We've been doing that for a long period of time and go back to the middle of -- for the end of 2020. So we have around the key components and subsystems, where there are long lead times. We have very strong partnerships with those suppliers. And we've been working with them. We've been investing where appropriate to ensure that they're able to increase their capacity. So that capacity comes online over time. Our volumes are lower around a lot of those parts. And so getting single-digit upticks sequentially quarter-to-quarter in terms of units can have a pretty big impact on the company's overall revenue. So we continue to make those investments and work with those suppliers. Obviously, you never know what the future is, but we do have this belief that with semiconductor revenue growing the way it is, capital intensity rising, that this will be a demand for the company going forward. And so whether it's near term or longer term, I'm willing to make the investments to ensure that we can be as flexible and responsive to customers as we need to be. We're also carrying more inventory, and that provides a little bit of extra buffer as well around some of these components. Because our volumes are where they're at, some of the more fungible or more commodity-like parts that are out there. Our challenges are probably a little less than some of the other folks out there just because I don't need as many of them. I need them, but I don't need as many of them just because of the level of volume we have. So I think it's across all those things. And we feel pretty good that, look, ultimately, our customers would like things sooner if we could deliver to them, but we are managing our way through it, and I feel pretty good about the guidance that we provided here today.

Yes. And let me just add one perspective where I think actually it differentiates KLA in a positive light relative to our peers in the industry. Because we've always been high mix, low volume, and we have several strategic relationships with key suppliers, as Bren, we've actually always been working the supply chain and making sure we invested in our suppliers so that we had capability because in many cases, where we've been for years inextricably linked to them. So when this thing hit, I think we were able to navigate it better, because to Bren's point, we don't need as many. We don't need the biggest volume. And with the critical ones we've had historically strong relationships which we maintained through the different cycles. So that's why I think, again, it's another example of KLA being less volatile in a dynamic market. So that is part of it. It comes with a lot of work, a lot of hard work with our supply chain. But I think we have the trust and relationships with them that when we make commitments, we could follow through on them. So it has taken work to do, but I think that's part of why we've been able to scale and we went through the whole period. We didn't stop guiding. We hit our numbers. We haven't missed our performance expectations. And I think largely, it's because of those things.

Got it. That's really helpful. And then just as a follow-up, in the prepared remarks, you talked about increasing expansion of service opportunities in the trailing edge. I was curious if you could double-click on that. And maybe also how do we think about that from a margin profile, just given it seems like maybe some of those opportunities are maybe a little bit more hands on?

Well, I'll take the first part, and Bren can speak to the margin opportunity. I think that, as you well know, a lot of these fabs are running a lot longer than historically, some of them have relied on some version of third party or their own service. As those factories have been upgraded with more recent KLA technology, it's really been falling on us to support that. So I give you the example of the C205 product line. That's not something that they're going to be able to readily get a third party to service or do it themselves or just wait. So we're engaging when we sell some of the newer capability into these more, I guess, traditional or trailing edge fabs, we provide more services and capability, and that's been part of the value proposition. The other factor, of course, that is helpful is they're all quite profitable enterprises for our customers, so they're willing to make that investment to secure their capabilities.

I don't think the margins are any different than other parts of the service business that we have. And look, we serve to an entitlement. We serve to what our customers purchase a certain service level, and we optimize the organization to be able to support that. Certainly, the utilization rates are higher, and so that's creating a revenue stream also the demand on that capacity in terms of not just incremental volume but also demands in terms of reliability is also increasing. And so that's creating opportunities for us to sell more capability, but also to introduce some of our newer products that have road maps and have the ability to have an upgrade stream to it.

And we'll take our next question from Timothy Arcuri with UBS.

I guess, Bren, you gave guidance first half versus the second half of this year for the whole company. But it seems like Process Control Systems could be up like low teens first half of next year versus the second half of this year. Is that a reasonable number?

So I said high single digits, and I would think that Process Control systems based on what we seek to do today, will be higher than the company average.

Higher than the company average. Okay. Got it.

Yes. So if it's 8-ish percent, I expect it to be higher. High single digits, right, 8%, 9% or whatever that is. So...

Yes. Okay. Got it. And then on EPC, so I know that the long-term outlook is for EPC to grow double digits, but you're growing more than 20% this year, and that's kind of even before the big packaging stuff from the big guy who has this huge project has even really hit your orders yet. So can you just talk about the timing of that? And do you think that you can grow double digit next year even off this elevated level? And maybe when do you expect that big project to start to positively impact your EPC business?

We would expect growth next year in EPC. I'm not going to get into specific sizing overall, but we are encouraged by what we're seeing here for next year. And I don't want to get into specific timing for customers. We're pretty optimistic about the opportunities that exist there and some of the product offerings that we have. So we'll have to see it play through, but I am encouraged to think it's another year of growth. I think EPC will have solid growth into next year.

So yes, Tim, just to give a little more color on that. I do think if you thought about these big programs, they're pretty early stages. So I think by the time that it will result in significant accelerant to that growth were in 2023. So it's not really -- 2022, I think, rises with some of the industry and programs and partnerships that we already have, '23 is a result of some of the newer things that are being worked on now. And I've mentioned before and we've talked, we are very excited about what we're hearing and seeing in terms of both the opportunity and the desire for these bigger players to engage with KLA. So -- but that's not as much a '22 as it is a '23 phenomenon.

And we'll take our next question from Patrick Ho with Stifel.

Congrats on a nice quarter. Rick, maybe first off, on a big picture basis, you're seeing a lot of changes in the DRAM industry right now from a process technology standpoint as you go to 1z and 1a. From a process control intensity standpoint, it's likely to increase. What are the biggest process challenges that you're helping customers address? Is it in new materials? Is it the deeper VS? And maybe if you could give a little color of the applications that are driving increasing intensity in DRAM.

I think the biggest thing for what we're seeing in DRAM, and this was a question, I think, for quite a while, was EUV going to be simply for advanced logic devices, advanced foundry. And now we're seeing it, as you know, starting to happen in EUV. And everything that comes with that, all the infrastructure that goes with that, all the work that's going to go on to make sure that you can qualify the reticles, even though they have redundancy, there's a huge fear of throwing away. This is a very expensive infrastructure. So there's a lot of work going on already with Gen 5 to make sure that we can help qualify. And of course, you mentioned the high aspect ratio devices, you're going to see more -- I think, they've been in a honeymoon period for actually several years, I would say that some of the DRAMs historically, and you didn't see the Process Control intensity grow. This is a real chance for it to increase as a result of the new capabilities that are bringing -- just EUV, what that brings on. You also have a lot of metrology applications as well. So I think we do see it broadly. I don't think it will ever get to the levels of Process Control intensity we see in leading-edge foundry logic, but it will increase probably at a faster rate in terms of growth of process control as we go forward. Assuming the successful deployment of EUV, which right now is certainly what they're working on. Just one example of that is in what we're hearing now is for DRAM is that there seems to be no pellicle is going to be used in the lithography. That's the belief right now. And if so, that puts a lot of pressure on print check, which is a very high intensity application for Gen 5. So there would be an example of a new application. I can't remember -- I can vaguely remember, but it wasn't in any decades since we've been doing it on a print check in DRAM. So this would be a whole new application for those customers. And as you know, some of them have experienced in advanced logic, so they know what that means. At least one of them does. So there's going to be some crossover from that. So we're feeling pretty good about where that's coming in terms of shaping up for yet another driver for intensity.

Great. And just as a quick follow-up, maybe for Bren. You guys have been posting really strong services revenues, which is not a surprise. Do you believe any of this incremental pickup in services is related to, I guess the shortage situation with chips, it's driving probably higher utilization rates and probably the need to keep these tools running. Do you feel like any of this incremental pickup in services is related to the current market situation involved with semiconductors?

Sure, sure. That's driving the higher utilization rates. So that's certainly a factor. One of the -- also the large factors you're starting to see tools that were shipped in '20 as we've seen that the systems business grow and ramp that those tools are coming out of warranty now as we move into the second half of '21. And so that is also a driver of incremental service revenue. I think that contract penetration has been good in this environment. Customers rely on us to keep their capacity up. And so we've also seen some incremental benefit of -- from a contract renewal point of view. So I think there's a number of factors that are driving it.

And we'll take our next question from Mehdi Hosseini with SIG.

Yes. Most of my questions have been answered. Just a quick follow-up for the team. Your December quarter revenue implies a wide range, up 7% to 16%. I would like to hear what are the key variables that would drive the low end versus the high end.

Mehdi, it's Bren. So our typical revenue guidance range is plus or minus $100 million. And typically for that, it tends for us to be more about, look, we have very large integer tools. We can have systems that can cost upwards of $40 million apiece. And so at times, depending on dynamics around supply chain, the dynamics around customer readiness and in some cases, you have to go to customer accepting -- their customer acceptance. So there are always those factors that influence our -- where we could land in a certain range. So our range has been very consistent over the last several quarters. I don't think anything's really changed on that front. It really gets down to our assessment of where we're at. In some cases, we have evaluations, consignments that have to be bought out. So there's always some fluidity to our expectations in our revenue plan as we build it up. But I wouldn't say that there's any one issue or another that is driving how we're thinking about the overall range.

Got it. That's fair. And then one quick follow-up on WFE. Given your view on the first half of calendar year '22, it seems to me that your share gain could be in the 50 to 100 basis point, and you're not providing absolute dollar value of WFE. But if I just take your commentary, it seems like a minimum of 50 basis point share gain is actually very conservative. Do you have anything you can share with me?

Well, we feel very good about the relative performance this year and to our prepared remarks, also next year. When we were at our Investor Day in New York back in 2019, we laid out a plan that we thought that would drive KLA's share of WFE up 75 to 100 basis points between 2019 and 2023. Part of that was market share gain, part of it we thought were intensity opportunities related to the introduction of some new products. So we feel pretty good about the trajectory we're on. I don't want to provide a specific number there. But our goal is to hit our plan, and I feel pretty good about where we are relative to that plan.

Operator, we have time, it looks like, for one last question.

Okay. Our final question will come from Harlan Sur with JPMorgan.

Great job on the quarterly execution and strong results. [ EVG ] adoption continues at a pretty aggressive pace in using mass layer accounts continue to expand with every new technology node. And then additionally, you have the one large logic customer that is now back on an aggressive technology cadence, leveraging EV. So how are you guys thinking about the growth of your reticle inspection business relative to overall Process Control for this year? And how are you thinking about reticle inspection growth into next year?

Yes. When I look at reticle inspection, I think it's a market growth kind of number this year, probably will be a record for us this year. And -- but I think on a go-forward basis, you're right, the introduction of EUV and increasing layer counts are driving growth in that overall market. As you know, we support that market with multiple products that help optimize for our customers to optimize around some of the technology challenges but also the economic objectives that they have. So I do think that there's an inflection in that market. We've seen nice performance this year, and we expect to see it continue to grow over the next few years.

Yes. I appreciate that. And then one of the big growth drivers for next year in terms of WFE is more of these mature and specialty nodes and you guys talked a bit about it. But I think the team actually did recently introduce 4 or 5 new tools which are primarily focused on mature and specialty inspection and metrology, like the C205 broadband plasma inspection platform. Can you guys just give us a sense of early adoption curve? What's the differentiation of these tools versus customers just buying like refurbished older-generation KLA tools?

Sure, Harlan. I mean I think that there was, I think, historically, a view of trying to leverage the older technology. But as you can imagine, those tools are quite aged at this point. So we definitely saw a step-up, plus it was harder for us to service it. So we're seeing a lot more capability we can offer now in some of these -- and I'd say the C205 is like a derivative tool of the BBP tool. So that's one where you get a lot of capability and certainly take advantage of all the work we've done in the algorithm area. And so we can offer it a lower cost because of the configuration and all that, but it has a lot of capabilities. So we're seeing much more interest in newer capability. And remember, these guys are getting pushed very hard by their supply chain, especially in automotive because there's such a focus on preventing some of the defects, reliability issues. As you know, those are incredibly expensive if they're caught later. So we're seeing pretty good adoption and growth. And it's kind of a little bit countered overall WFE's cyclicality. So we think that is a steady area of investment. What we laid out at the Investment Day, 100 years ago, it feels like 2019, we're still on track, actually ahead of plan for that in terms of automotive. And we anticipated bringing on some of these products at that time.

And I assume that you're getting, what higher dollar capture value for these new tools relative to, let's say, purchasing a refurbished tool?

Oh, much higher. And I think it's just -- it's a better deal, frankly, for everybody. I mean the capability of the software, they can do more with them. We can service them more effectively, have a longer life. I think, a lot of upside for them to do that. In fact, in many of these older fabs, this might be the one area where they are bringing in new capability.

And thank you, everybody, for your time. This will conclude the call. I'll pass it back to the operator for any final instructions.

And this concludes the KLA Corporation September Quarter 2021 (sic) [ 2022 ] Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.