Lam Research Corporation
Q3 2021 Earnings Call Transcript

Published: 21 Apr 2021

[Operator:]

Good day, and welcome to Lam Research Corporation's March 2021 Quarter Financial Conference Call. At this time, I would like to turn the conference over to Tina Correia, Corporate Vice President of Investor Relations and Corporate Finance. Please go ahead.

[Tina Correia:]

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer.

[Tim Archer:]

Great. Thank you, Tina, and thank you to everyone joining the call today. Lam posted excellent results in the March quarter with record revenues from both systems and install businesses, as well as record cash flow from operations and record earnings per share. Our performance reflects solid execution by Lam employees and our partners worldwide despite ongoing COVID-19-related impacts. The investments we are making in manufacturing and supply chain resiliency are enabling us to support our customers' needs, amid a broad based strengthening in semiconductor demand. We are very optimistic on our positioning and see continued strong growth for Lam in the future. Let me first begin by updating our expectations for wafer fabrication equipment spending. Since our last earnings call, we have seen WFE spending plans increase for the calendar year. Our outlook for 2021 WFE is trending above $75 billion. And we now believe the WFE spending in the second-half of the calendar year will be higher than the first-half across all device segments. Several factors are at play in driving this robust WFE growth. First, secular tailwinds such as AI, 5G, and IoT continue to strengthen. And over the past year, COVID-19-related impacts like work and learn from home have accelerated adoption of these technologies. Second, the complexity of manufacturing advanced semiconductor devices continues to increase at a rapid rate, leading to a rise in equipment capillarity across all segments. Third, innovative consumer products are incorporating more semiconductor-enabled functionality, driving faster growth in semiconductor content per .

[Doug Bettinger:]

Great. Thanks Tim. Good afternoon, everyone, and thank you for joining us today during what I know is a busy earnings season. I hope you and your family is safe and healthy since we last spoke with you. Lam delivered outstanding results for the March quarter, with record quarterly revenue and strong profitability metrics. For the quarter, our revenue and gross margin came in above the midpoint of our guidance, and both operating income and earnings per share were above the guidance range. We've continued our excellence in execution, not only in delivering impressive financial results, but also in being our customers' most trusted partner. We delivered revenue for the March quarter of $3.85 billion at the high end of our guidance range, which was an increase of 11% from the -- quarter. Our solid revenue performance was mainly due to an increase in foundry-related systems as well as record performance in our customer support business group, or CSBG, where we had increases in all parts of that business. Our customers' fabs are running at high utilization levels, which drives the need for consumption of spare parts and services.

[Operator:]

Thank you. We'll take our first question from Harlan Sur with JPMorgan.

[Harlan Sur:]

Good afternoon, and congratulations on the strong results and execution. I assume that given the strong demand trends across leading edge and lagging edge, that the team has seen extended tools. Wondering if you can quantify, is the team already starting to book into the second-half of this year? And if I'm a customer that places an order today for one of your tools, when will this tool actually be producing wafers? Is it nine months from now, 12 months from now? Would appreciate any insights.

[Tim Archer:]

Yes. Harlan, thanks for the question. Obviously, for a lot of reasons, we're not going to divulge our lead times on this call. But we will say that, clearly, what we said is unprecedented demand, and combining that with COVID impacts capacity is tight, and it has extended our lead times. We would say our visibility into our future is quite good at this point, but we don't want to go into exactly how long it takes for a customer to order to get it and qualify it at this point for competitive reasons, ours and our customers.

[Harlan Sur:]

Yes. Appreciate that. If I think about the fundamental environment, right, if I look at your memory business and I look at your customers, so both NAND and DRAM pricing fundamentals continue to move higher, combination of strong demand, relatively disciplined supply spending. In fact, relatively disciplined supply spending since the last week in 2018. Most of your customers are anticipating that DRAM and NAND bit demand will exceed its supply growth here in 2021. I know you guys do a pretty good job on the analytics side around supply and demand. I'm just wondering how you see the supply/demand balance in memory, especially as we move through the back half of this year and factoring in the incrementally better WFE outlook that you outlined today.

[Tim Archer:]

Yes I'll go ahead and make a couple of comments and then let Doug chime in with some of the specifics on the supply. Clearly, we've said even entering this year, we felt it was going to be a very good year for memory for a couple of reasons. One, DRAM had gone through a couple of years of very conservative spending. And so there was some pent-up demand there for spending both on technology and some capacity. From a NAND perspective, we talked a lot about the increasing spend related to layer transitions that were going to be occurring this year. And so, we have seen that playing out. I think you combine that with, again, growing demand across many, many different end market segments and also the need to add capacity both in a greenfield perspective as well as conversions and that's led to an ongoing stronger outlook. We do model obviously bit supply and demand. I'll let Doug talk a little bit about what we're seeing there.

[Doug Bettinger:]

Yes. Harlan, thanks for the question. Yes. We came through 2019 where spending was held pretty closely in check and even through a good chunk of 2020 and maybe all the way through 2020 for DRAM. And when you look at the two years of investment there, exiting last year and you look at supply growth, it was below where longer-term demand growth was in both NAND and DRAM. And I think you saw that and are still seeing it in pricing. And as a result, our customers respond -- we see them responding carefully, prudently is the way I like to describe it, consistent with where they see demand growth. And the investments we're starting to see increase somewhat in both NAND and DRAM are a result of that. We continue to believe long-term NAND demand to be in the mid-high 30% in bit supply and not caught up of that yet, and that's why investment is up. Similarly, in DRAM, we think longer-term demand is in high teens, maybe approaching 20%. And as a result, the supply growth is being invested in to try to get caught up with that. That's really what we see going on.

[Harlan Sur:]

Thank you for the insights.

[Doug Bettinger:]

Thanks, Harlan.

[Tim Archer:]

Thanks, Harlan.

[Operator:]

Thank you. We'll take our next question from John Pitzer with Crédit Suisse.

[John Pitzer:]

Yes. Good afternoon, guys. Congratulations on the strong results. Tim, I want to talk a little bit about kind of market. Tim, in your prepared comments, you talked about your expectation for this being another market share gaining year for you. And at the Analyst Day a year ago, I think to your 2023 model, you guys had sort of embedded sort of 4% to 8% points of share in etch and dep. I'm just kind of curious to what extent was that sort of time-sensitive versus volume-sensitive? And as WFE kind of gets ratcheted up here at a faster rate, do you expect share gain to happen more quickly? And while you're on the topic of share, the perception on Wall Street is that you guys are extremely well positioned in the NAND market, but I think perhaps people are underestimating your positioning in kind of logic/foundry. Kind of curious, if you can talk about the areas outside of NAND where you feel most comfortable about share growth this year and going forward.

[Tim Archer:]

Yes. Sure. John, I'll start this one. I think it's a great question. And I would actually say this, breaking it in this way of time versus volume where we already possess a very strong leadership position like 3D NAND, increased WFE volume helps with share gain immediately. But that – but it's not just a volume story, because time progresses and transitions occur to greater numbers of layers. We actually see both more equipment needing to be purchased to deposit and etch those thicker stacks, but also new applications that get created that, again, expand our SAM, and with time, even build on a really strong NAND position. So there's kind of an element to both volume and time in there. On foundry/logic, a little bit of the same, although, I think most people know that we've laid out a story of how some of the technical inflections really do create new opportunities for Lam to introduce new products, gain share and build a strong position in foundry/logic. I would say there, there definitely is a time element in that we need technology transitions to occur. You need to go from 7 to 5 and 5 to 3 and, ultimately, 3 to 2, because we're focused on catching the new applications that are being created by the most difficult technical challenges. And so in my prepared remarks, I talked about things like nanosheets, gate all around, the 3D-like inflections that are occurring. And those -- there's a time element. They have to -- they -- those nodes have to ramp, and they're not ramping just yet. We talked about EUV and our new dry resist process, again, a great opportunity for Lam to enter into a space that's - in foundry/logic that we just haven't been in up to this point, but we -- those are future node-looking opportunities for Lam over the next several years. And so, again, I think that's why what you hear from us is confidence that we benefit from the strong environment we're in now, but we're laying the foundation for an even stronger future as time evolves.

[John Pitzer:]

That’s helpful. Thank you.

[Tim Archer:]

Thanks, John.

[Doug Bettinger:]

Thanks, John.

[Operator:]

Thank you. We'll take our next question from Stacy Rasgon with Bernstein Research.

[Stacy Rasgon:]

Hi, guys. Thanks for taking my question. I wanted to talk about the customer service business a little bit. Can you give us some idea of how much of the strength in the quarter -- coming from the Reliant mature node tool set? I get the idea that there's more mature node capacity need right now. Do you feel like that is a long-term trend? Is that sustainable? And maybe if you could give us some -- any further color on the amount of the CSBG group that's actually coming from upgrades. And I guess the same question, are there -- is there more like a onetime element to that? Or do you think the run rate of what we're seeing right now is a sustainable driver for that business going forward?

[Doug Bettinger:]

Yes. Stacy, thanks for the question. Maybe I'll take this and let Tim add on afterwards. I think both Tim and I said in our script, all components of BG business delivered record performance last quarter. You're right about the Reliant product line, very much focused on maybe trailing etch 28-nanometer and above nodes, another record. I think we're printing double-digit number of quarters where we've delivered records there because of the things you're referencing or referring to. Upgrades were very strong, which is always a high ROI for the customers to get increased capability from the installed base. Spares were very strong. Think of that as being driven by utilization in the industry, broadly speaking. Utilizations are very high. I see our customers trying to build a little bit of inventory in spares similar to what we're doing with our own inventory because of concerns about different supply chain disruptions. So -- and then service. Service also correlates with utilization in the industry. So honestly, when you think about what's going on in the totality of CSBG, $1.3 billion, up 50% from a year ago is hitting on all four cylinders that I just mentioned. And each of them have their own unique tailwinds that are driving the business.

[Stacy Rasgon:]

Yes. I think, service wise…

[Tim Archer:]

Maybe just -- sorry, go ahead, Stacy.

[Stacy Rasgon:]

No, no. Please go ahead.

[Tim Archer:]

No, I was just going to add on. I think to your point about the sustainability of upgrades, I think the one key point is that we've said the installed base grows every year. And so really, that is our opportunity. So we -- naturally, by Lam shipping like in a year like this, so many new systems out into the field, our SAM expands for upgrades every single year. And so we really do think that through innovation and coming up with ideas for how the customers extend the capabilities of the tools and improve productivity, it's in our hands to continue to deliver greater revenue capture from every one of those tools that's out in that installed base and so I think that's quite sustainable. And then to your point of the lagging edge, clearly, there's a very strong demand at this point. And kind of to the first question about capacity constraints and lead times, that problem doesn't get solved probably in a very short order of time. And when I think about sustainability there, it goes to this point I made in my talk about it's about semiconductor content in everything, enabling new functionality, and many of those items are making great use of mature technologies. So, we've seen that business just grow quarter after quarter after quarter, expanding with the overall market. So, I think both have a strong sustainability component to their revenues.

[Stacy Rasgon:]

Do you think it would be possible to give us some rough split of how the customer service business breaks up right now between those four categories, upgrades, repairs, and services?

[Doug Bettinger:]

We haven't quantified it, and I'm not going to now. I think the color we have given is the spare parts piece of it is the largest component, but we haven't quantified it.

[Stacy Rasgon:]

Got it. Thank you very much guys.

[Doug Bettinger:]

Thank you.

[Operator:]

Thank you. We'll take our next question from Timothy Arcuri with UBS.

[Timothy Arcuri:]

Thanks a lot. Actually, I had two. I guess the first one, Doug, obviously, CSBG is running like roughly 15% above your 2020, and you gave that a little bit over a year ago. So, I guess, the first question is sort of what did you under appreciate in that model a year ago? I know that WFE and your systems business has really just taken off, and maybe that's the answer that you're still growing double the installed base, and that's just taken off more than you thought. And then I had a second question as well.

[Doug Bettinger:]

Yes. I mean Tim alluded to chamber account. Clearly, it's been a very strong year and so chamber account is higher than I think I would have thought a year ago. Industry -- probably stronger than I would have expected a year ago as well. And upgrades is probably benefiting from that also, Tim. So there's probably an aspect of it in each of the segments. And yes, we are certainly ahead of the model that we gave you a year ago. I'm not ready to update the model. But clearly, we're ahead of where that model is.

[Timothy Arcuri:]

Yes. Okay. Thanks. And then also, I keep getting a lot of questions on NAND and your business, and you guys do a great job mapping the WFE back to bits. And my math says we're running close to $5 billion a quarter in NAND WFE right now, and it sounds like you think that goes up into the back half of the year. So, if that's right, and then I tie it back to your comments that you mapped kind of $15 billion a year to drive mid-30s bit growth, and then I think you said $350 million for each 100 basis points beyond that, that would sort of scale up to like 45% bit growth, maybe as high as 50% just on like a run rate basis. So, I keep getting pinged on that from people asking about that. So, can you sort of tie those numbers back? Thanks.

[Doug Bettinger:]

I don't know if I can do all the math that you just asked on the call, Tim. I mean investment ebbs and flows, ebbs and flows in each of the end markets flows in NAND. We did say we expect the second-half to be stronger investments in all aspects of the market, including NAND. Yes, it's up this year from where it was last year. It's getting caught up with kind of the under-investment that we saw in 2019. To a certain extent, you're still seeing very strong pricing. And as a result, people are investing, trying to get caught up with where demand is, honestly. And it'll ebb and flow. It won't go up every single quarter. We see a very strong investment this year, and I think it's going to continue in the long term to be very strong, right? But I can't do all the math that you just asked, sitting here on the call. I'd be happy to follow up with you offline, though.

[Tim Arcuri:]

Thanks, Doug. Cool. Thanks.

[Doug Bettinger:]

Yes. Thanks, Tim.

[Operator:]

Thank you. We'll take our next question from Krish Sankar with Cowen & Company.

[Krish Sankar:]

Yes. Hi. Thanks for taking the question and congrats on a very strong results. I have two, one is the short term and one is the long-term question. The short-term question for Doug is, is there a way you can quantify how your second-half revenue is going to trend with the first-half? Or do you think CSBG revenues would outperform system revenues in calendar 2021? And then, I had a follow-up for Tim.

[Doug Bettinger:]

Krish, did you say second-half earnings? I didn't quite catch.

[Krish Sankar:]

Second-half revenues versus first-half revenues, and would CSBG be greater than system revenue growth this year?

[Doug Bettinger:]

Yes. Krish, we guide one quarter at a time, and then we give you color about what we see for the year. And I'll remind you what we tried to say. We see WFE in the second quarter, which is good for the trajectory of our business. So you can read into that what you think for our revenues, but WFE is stronger is going to be a good thing for us. We just guided June up to $4 billion. So that's as much as I'm going to give you on the revenue side. So, yes, it's been like a pretty strong year, and we see the second-half spending stronger than the first-half across all of WFE. And what I say -- yes, Krish, what I said on CSBG is, I expect it to be a strong year for CSBG, a continued strong -- give you a hard number on it, but all the tailwinds that I described look like they're continuing.

[Krish Sankar:]

Fair enough. Thanks. And then just a follow-up for Tim, a longer-term question. When you look at like some of the upcoming technologies like gate all around, it looks like selective removal etch would be important in addition to Epi. So I'm kind of curious, how is Lam positioned for gate all around. And is there a way you can quantify the dollar or revenue opportunity for Lam?

[Tim Archer:]

No, I don't think there's a way we can do that. But what we've said is that Lam SAM expands at every technology node. And clearly, gate all around is the map. What we tried to point out is, again, what's -- what is sort of the embodiment of our product and technology strategies to identify new applications, new requirements that emerge when device technology changes, when architectures change and ensure that Lam is positioned early for those with products and with our customers, so that when the change happens, we're in a great position to win those. We've given you a few examples, not all of the examples, but I think that, that's -- that's again, it's just to give you a sense that when these inflections occur, we're -- we have a track record of doing quite well. It's also why we keep pointing back. It's the same strategy we executed through the 3D NAND inflection. And ultimately, over time, it's built for us an incredible business. And so, I think, gate all-around is coming as an opportunity for us in that way. We pointed out EUV and the ultimate changes in the way patterning is done and what we see anyway for the opportunity for Driver Assist is another, while not gate-all-around focused, it's kind of at the same technology node where those changes occur. So we see promise in foundry/logic for our future.

[Krish Sankar:]

Okay. Thanks. Thanks all.

[Tim Archer:]

Thanks, Krish.

[Operator:]

Thank you. We'll take our next question from C.J. Muse with Evercore.

[C.J. Muse:]

Yes. Thank you for taking the question. I guess first question, you talked about second-half WFE higher than first-half. Curious what magnitude of upside this could support versus simply just being sold out and pushing demand into the first-half of 2022. And as part of that, can you speak to the timing of ramping capacity in Malaysia and bringing more resources on for you guys?

[Tim Archer:]

Okay. C.J., let me get it go on this one. Clearly, what we've said is that capacity is tight. And so the very first question, I probably could have even added. If a customer would order a tool today, when they get it, I won't divulge, but I mean, clearly, it will not be adding to qualified capacity this year. I mean that, sort of, gives you some sense of where lead times and such are. But we do have a couple of events coming in the second-half of the year that are meaningful for us, and that is expansion of our Asian manufacturing facilities. Doug talked about the buyout of our JV in Taiwan as an opportunity for us to take a little bit more control for that entity and continue ramping. And Malaysia is a second-half 2021 story for us in terms of its ramp. And so we are confident in long-term capacity needs for the company, and we want to be able to support and return lead time is back towards more historical levels for the company. And as I said, they're extended now. Part of this capacity expansion is to return those more to normal as we get towards the end of the year.

[C.J. Muse:]

Very helpful. And as a quick follow-up, for domestic China revenues, was that primarily manned and as you able to obtain a license for SMIC yet?

[Doug Bettinger:]

C.J., demand in local China customer base, broad-based. Trailing etch foundry, a little bit of DRAM, a little bit in NAND. As to license for our large foundry customer in China, no update. We're still waiting to hear back from the government.

[C.J. Muse:]

Great. Thank you.

[Tim Archer:]

Thanks C.J.

[Operator:]

Thank you. We'll take our next question from Toshiya Hari with Goldman Sachs.

[Toshiya Hari:]

Hi guys. Thanks for taking the question, and congrats on the strong results. Doug, I wanted to follow-up on China. I guess I've been a little bit surprised how long your China business has been over the past quarter or two despite some of the restrictions placed on SMIC. What's been the offset to the upside in your China business? You just talked about broad-based demand, but did anything stand out over the past quarter or two? And how are you thinking about calendar 2021 local China WFE on a year-over-year basis? And then I've got a quick follow-up.

[Tim Archer:]

Yes. Sure. I'll take a crack at it. I mean, it's broad-based. First thing, I'll remind you that when you see our regional revenue, it's a ship to fab location. So it's -- there's a balance between local China and global multinationals taking equipment at their -- in their fabs in China. I did say that the majority, more than half last quarter were the local Chinese customers. The quarter before, in the December quarter, it was the other way around. It was more MMC-oriented. So it's pretty broad. And it's -- then relative to the local China component of it, it's a broad set of customers. Some of you probably know, but I would tell you, there's a long tail of smaller customers that maybe you're just getting to know or maybe you don't know yet. So, it's a broad set of people investing. And thinking about WFE from local China this year, it's up from last year. It's growing across laying edge, logic nodes, and memory.

[Toshiya Hari:]

Got it. And then as a quick follow-up, on CSBG, Doug, you mentioned the long-term growth outlook there is now better to what you presented last year at your Analyst Day. Is that simply a function of the 2021 base being higher? Or has something changed structurally or fundamentally in CSBG? You talked about the chamber account obviously being higher and utilization rates being higher, but anything kind of structural that has changed over the past 12 months? Thank you.

[Doug Bettinger:]

No, I wouldn't point anything structural. It's -- we're shipping more chamber, so that’s some bigger opportunity from I guess I think of an available market standpoint and its pieces of all four components in CSBG.

[Toshiya Hari:]

Thank you.

[Operator:]

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

[Joe Moore:]

Great. Thank you. May I follow-up on that last question? Doug, you made the comment that you can't see the services business. You'd be very surprised to see it not grow each year. And obviously, the chamber count growing is a nice kind of lead indicator. But when you talk about a lot of the drivers of higher utilization, people building inventory of spares, things like that, that are sort of a function of this very tight supply environment that we're in, do you see those things turning into headwinds next year? And I mean it still seems like you're likely to grow given the growth in chamber count. But the outperformance versus chamber count, can that continue beyond this kind of very strong near-term environment?

[Doug Bettinger:]

No, I don't have any different view of the business, Joe. I have a hard time seeing it not growing every year. It doesn't mean it's going to grow every single quarter, but we're shipping a lot of chambers this year, which is the momentum of the business going into next year and beyond. Not every component of it may grow every year, but we're feeling really good about where it's going. And like I said, the chamber count is an important metric to think about future business opportunity.

[Tim Archer:]

And Joe, if -- I don't know if you remember, but at our Investor Day, we showed an objective we had about revenue capture for chamber as well. And so I pointed out in my comments a couple of places we're making progress. It is about trying to develop some of these data and equipment intelligence, services offerings, also productivity upgrades. Clearly, customers are focused on trying to get as much output out of existing installed base as they can, and those types of services and upgrades help them do that. And in that way, as chamber count grows, we're also expanding SAM for those. So, that's another reason why we believe year-on-year, we can continue to grow that installed base business.

[Joe Moore:]

Great. Thank you.

[Tim Archer:]

Thanks Joe.

[Operator:]

Thank you. We'll take our next question from Vivek Arya with Bank of America Securities.

[Vivek Arya:]

Thanks for taking my question. I had two as well. First on the NAND side, I was hoping you could give us a sense for how much of the market right now is -- versus greenfield deployments? And how does that compare to what it was last year? And does this ratio impact the benefit you can derive from the market? Like does the spending intensity change, right, depending on whether there is more conversion versus greenfield?

[Tim Archer:]

Yes. Vivek, I'll take that one first and let Doug comment. But fundamentally, there is -- and I said this on our last call, our view for this year is a bit more greenfield investment this year than last year. There's also more conversion investment as well. So the overall market is up. But there is an important difference in terms of the capital intensity per bit in the greenfield, which is higher. Conversions are more efficient. But what's unique for Lam is those conversions, our share -- our capture of the WFE is much higher in the conversions. And so, while we really do sell the same things in both instances, in the conversion, it's mostly etch and deposition equipment that's required to continue to build those taller stacks. And so we do very well there. So this year, it's a blend of both. But I think that, again, it's one of the reasons why, as we look going forward, every tool that gets installed for a greenfield, ultimately, as customers transition to higher layer counts, those tools will ultimately need to be upgraded and move forward through that next layer count. And that means our opportunity for the installed base business just continues to grow, the more fabs ultimately that we built for NAND.

[Vivek Arya:]

All right. Very helpful, Tim. And for my second question, if I take a longer-term view of WFE, what we have seen is that, historically, it will grow for two, at most three, and then it'll kind of consolidate there for a few years. And then, it'll take another big step-up. When I look at the WFE outlook for this year, this will be the second year of very strong growth. How do you think about WFE intensity from these levels? And when do you think we should start to bake in any incremental benefits from the regionalization or increased domestic manufacturing headlines that we see in U.S. and Europe?

[Tim Archer:]

Yes. It's a great question, and we were -- there's no doubt when you have strong years, people start wondering when you'll get a year of the strong. We haven't talked about whether 2022 is up or -- but we have said, we feel we are in a strong multiyear environment. We think it's too early to really know how all these factors I talked about play out in any given year. But over the longer term, we see these new technologies and increasing content, we definitely know increasing complexity. You're hearing that from all of our customers. Increasing complexity is increasing equipment capital intensity. And then your regional comment, another bit of a wildcard, but definitely positive, given everything that is going on that you're seeing in chip shortages and all the discussions there. So I think those items, they will play out over a multiyear period. Recent -- we're kind of aligned with recent things we've read in the media that say, chip shortages don't get solved in 2021. Regional capacity investment ambitions don't get solved in just a couple of year period. These are multi-year trends that we think are tailwinds for semiconductor capital equipment.

[Vivek Arya:]

Thank you, Tim.

[Tim Archer:]

Thanks, Vivek.

[Operator:]

Thank you. We'll take our next question from Blayne Curtis with Barclays.

[Blayne Curtis:]

Hi, guys. Thanks for squeezing me in. Just I want to ask specifically an analysis of DRAM market, it's been an undersupply. You haven't seen kind of any company, you really see a big uptick. Just the fact, that is what's going on there and if you see any uptick as you look in the back half of the second year. And then just for Doug, just when you laid out your long-term targets, obviously, a $75 billion WFE is higher than that. You're dealing with higher shipping costs. But just a perspective on, I don't know when you're going to be able to sell the shipping cost or perspective on getting that margin back from the 33% to 34% target that you laid out?

[Doug Bettinger:]

Yes. So you really -- you've got two questions here, Blayne, what's going on DRAM and then what's going on the target model. I'll take a cut at both and then let Tim comment on either one. Yes, we see -- DRAM investment, when I look at it, it's a pretty consolidated set of customers. And I just view them prudently managing capacity, prudently managing where they see pricing, prudently managing how they bring capacity online and paying attention to profitability is really what I see going on. And so that's why when we look at this year, the first-half, DRAM still is fairly muted in terms of level of investment, and you see it ticking up a little bit in the second-half as the industry tries to bring supply closer to where demand is. It's just in a pretty healthy place is how I see it. And yes, that's all -- that's what I get there. Relative to the long-term model, a couple of things to think about. First on the logistics costs. We're going to be dealing with elevated logistics costs until global airfreight gets back to a more normalized level. I don't know when that's going to happen. I think it's going to require some level of consumer travel again because a lot of stuff flies around in the belly of commercial aircraft. And so I'm optimistic it gets progressively better, but we're still seeing headwinds for the foreseeable future. Then relative to the financial model getting at slightly higher profitability, first, I feel great about where we just guided, right, 32% operating income at the midpoint; that would be the second highest level of profitability the company has generated in its 40-plus-year history. So I'm feeling good about what's going on there. There's a time component to the profitability as well, which has to do with some of the things that we talked about on the call today, ramping a factory in Asia -- in the Asia regions where cost structure is a little bit better, dealing with those freight logistics costs. I still feel really good about attaining that financial model. And I think actually, you're seeing demonstration of it this year from us already. I don't know, Tim, if you want to add anything.

[Tim Archer:]

Yes. No, I think the only thing I would add is, clearly to echo Doug's comment, we're extremely happy with the 32% guide. And in the same vein, we're investing a lot for our future. I mean, Doug mentioned the Malaysia factory, which will help, new Korea technology center coming up, put us closer to our customers, accelerate solutions, bolster our opportunities per share gain across both memory and foundry/logic, new products that are coming out. I mean, I can't remember a time when Lam has had more new products coming out, really focused on key technology inflections across all device segments. And so we're very happy, we're delivering these financial results and making these investments that we think make us much stronger going forward.

[Blayne Curtis:]

Thanks, Doug.

[Doug Bettinger:]

Thanks Blayne.

[Tina Correia:]

Excuse me, Operator, we have time for one more question please.

[Operator:]

Thank you. We'll take our last question from Weston Twigg with KeyBanc Capital Markets.

[Weston Twigg:]

Hi, thanks for taking my question. First, I just wanted to ask a follow-up on C.J.'s question around your revenue capacity capability in the back half of the year. It sounds like it maxed out in terms of your system revenue heading into the June quarter, and it loosens up a little bit. But can you give us a feel for what that peak could be? Is it $2.8 billion? Is it $3 billion just from, sort of, boundary in terms of what you're limited by -- from a revenue perspective?

[Doug Bettinger:]

Yes. Weston, I'm going to quantify for you, but we're making investments across all of the factory network. We talked about taking ownership of a Taiwan factory. We talked about ramping a new factory in Malaysia. We're trying to squeeze incremental capacity out of what the other existing locations to try to get those lead-times back to a more normalized level that Tim was referencing. And so as we do those things, our capability will get bigger. I'm not going to quantify it for you, but we're working on all of that stuff.

[Weston Twigg:]

Okay. So, it just sounds like -- as long as we think about a gradual improvement over time, we should be -- and don't get too crazy, which should be in the ballpark. The other question I have is just in terms of revenue growth drivers. And wondering if you could just give us a feel for the rate of growth of your systems revenue that's driven by 10-nanometer and below in logic versus some of the older nodes where you're also seeing pretty good growth. Is the rate similar? Or are you saying you're still seeing quite a bit faster growth at the leading edge, which is what we would typically expect?

[Doug Bettinger:]

The majority of the spending in foundry and logic is at those leading edge nodes. Even though there's a broad-based set of investment occurring less because of the capital intensity at the leading edge node, that's usually what drives a lot of what's going on.

[Weston Twigg:]

Okay, that’s what I would expect. Perfect. That’s helpful. Thank you.

[Doug Bettinger:]

Thanks Wes.

[Operator:]

Thank you. I'll turn it back to management for closing remarks.

[Tina Correia:]

Thank you, operator and thank you all for joining our call today. We appreciate your time.

[Operator:]

This concludes today's call. Thank you for your participation. You may now disconnect.