KLA Corporation Common Stock Citi’s 2026 Global TMT Conference

You know, you almost got through it.

I know. Rick- It's been seven years.

Tencor didn't exactly just flow off the tongue, but thank you for having us.

Yeah. Giving you a hard time.

2028. Yeah, I will just level set a little bit on where we are at right now and some of the themes that came out of our earnings results back in July. It has been a pretty exciting time at KLA. If you just go back and look at in 2024, we grew 12%, 2025, we grew 17%, 2026, if you take our performance plus some of the guidance we gave, you end up in the low 20%. So, over that timeframe, the financial model has moved. We have been at the upper end of our incremental operating margin model, and gained about 400 basis points over that timeframe in terms of operating profits. So, one of the strongest models in the industry, both in terms of opportunity and share of market, but also in terms of leverage and operating performance has played through, and we are pretty proud of that performance.

2026 has shaped up to be a year of increasing momentum, as you said, right? We started the year, went back to our Investor Day. We thought the industry would be somewhere around $135 billion. That was just in March, $135 billion to $140 billion, and we did talk about greater than $150 billion expectation. So while our customers are struggling with space, they are figuring out ways to take equipment. First half of the year, a little slower in terms of sequential performance growth into the second half of the year, half to half, 20% higher in the second half versus the first half. So, we are excited about that we are starting to see the momentum building, not only in what is happening with our customer engagement, but also in our ability to supply and get the needed components that we need for our systems.

2027 looks to be a pretty favorable environment. I think growth rates into 2027 are probably in a similar range, maybe higher. We will see as we get closer to it. Some different views on that. Our orders are certainly our backlog is very strong. We just disclosed our backlog just short of $13 billion in our 10-K that we filed back at the beginning of August. And the order funnel has been very strong, and I would expect that backlog to continue to grow. So the visibility that we have from our customers into shipment expectations through 2027 and in some cases into early 2028 is pretty good. So, our customers' profitability levels are extremely high, and so they certainly can support the level of investments that they are making. And the priorities for the company in this environment for us is just to, first of all, the execution.

I talked about supply chain and trying to get systems out the door, aligning to our customer expectations, delivering on next generation products. I talked about the operating model earlier. That comes from the innovation that we do at KLA, the differentiation in our products that is reflected in our gross margins. Our gross margins, I think, are the best indicator of differentiation in the industry. It is typically what we point people to. If you have a differentiated business or not, it typically is reflected in the gross margins. We need to be able to deliver those programs that allows us to do some adjustments for pricing, both in terms of delivering new capability, but also dealing with costs. It is pretty important effort for us not to lose sight of our development requirements at the same time we are ramping to execution.

Driving our ability to support our customers through service applications, and so on, so we can keep these fabs running at high utilization levels. Given the value of the chips that they are producing, both in logic but in memory, yield is really critical. Printing money, if you will, in terms of incremental yield performance, and how that translates to their financial results. So that is important for us to make sure that we are in position to be able to support them.

We did not disclose that, but we are taking orders basically for the next, in most cases, it is 12 to 18-month time frames. In an environment like this, you might be further on the end of that, and it can be product specific. Certain products, for example, our Gen 4 and Gen 5 tools will have longer lead times than our metrology tools, for example. But it is typically in a delivery window that is more or less in that time frame. You can have facility schedules that will drive a customer to place an order to ensure that they are getting tools when that facility opens. Those schedules are tied to construction. In some cases, you will see orders from customers to ensure that they are slotted in the appropriate timeframe for that construction schedule. Our engagement with our customers is very high.