Memory Spending Recovery
Q: Can you discuss expectations for memory segment, given litho peer's large DRAM orders?
A: Forecasting WFE is tricky, but we see WFE up this year, modestly recovering due to memory, with a stronger exit to the year. Memory spending across DRAM and NAND has been at unsustainable low levels, so it's not a surprise it will correct itself. We have strong positions in high-bandwidth memory and DDR5 applications, established from recognizing DRAM opportunities years ago.

NAND Supply-Demand Outlook
Q: What's your assessment of NAND supply-demand, and when will customers start adding tools?
A: Utilization cuts were severe in NAND last year, leaving significant capacity offline that needs to return. The key question is at which technology node capacity should restart; there's a high likelihood that technology upgrades will occur as equipment is reactivated. We expect a revival of utilization-driven revenue from spares and services, as well as technology upgrade revenues, representing the majority of NAND spending this year.

Gross Margin Normalization
Q: What's the right normalized margin; is mix helping by 50 basis points?
A: Customer mix is benefiting us again in the March quarter guidance, perhaps even more than last quarter. In the June quarter last year, we were around 46% gross margin (45.7%), which is a reasonable starting point when mix normalizes back to typical levels. Operational improvements and moving to lower-cost locations should benefit margins as growth resumes.

China Business Outlook
Q: You mentioned China mix should decline; is China business slowing?
A: We are not seeing China slow down; it's purely about the timing of when spending occurs. We've consistently described our China business as "stable." Year-over-year, it's relatively steady, though half-on-half may look different in 2024 compared to 2023. Customer mix effects may lessen as we progress through the year.

DRAM Demand and HBM Impact
Q: Your DRAM systems revenue was strong; what's driving this, and what's the outlook?
A: The strength in DRAM during the December quarter is driven by high-bandwidth memory (HBM) and DDR5, along with a China DRAM customer in the second half that wasn't present in the first half. Going forward, even if China demand adjusts, we expect growth in core DRAM and HBM as key drivers.

CSBG Growth Outlook
Q: How should we think about CSBG growth profile this year and beyond?
A: Our CSBG business was heavily impacted by utilization cuts, but with a much larger installed base now and pent-up demand, tools need upgrading. We anticipate that upgrading the installed base will generate significant revenue. This business not only provides stability but also opens new growth channels as we innovate around the installed base.

OpEx and R&D Spending
Q: Is total OpEx up, and how are you approaching R&D growth this year?
A: Total OpEx is likely increasing, with R&D rising more substantially. Last quarter, 69% of total spending was in R&D, a high watermark. We're intentionally growing R&D investment due to the significant opportunities we see. As we progress through the year, we'll continue to invest in R&D, and we might not see the historic leverage we've previously delivered.

Delivery Times and Visibility
Q: Where do delivery times stand, and how quickly can you react to increased demand?
A: Lead times have returned to more normal levels, but to ship within this year, we need to be informed about orders relatively soon. Our investments in manufacturing and supply chain operations closer to our customers help us respond faster. We typically aren't the bottleneck in terms of lead time when planning new fabs.

HBM Market Growth
Q: How fast is HBM growing, and what's its impact on Lam?
A: As a key supplier in the HBM market, we're experiencing very strong demand. The AI market is evolving rapidly, and we're focused on expanding our capacity and capabilities to maintain our technology leadership. HBM-related advanced packaging steps are areas where we're exceptionally strong, and we're witnessing significant growth.

Revenue Growth in Second Half
Q: Will Lam's revenue in the second half of 2024 be better than the first half?
A: Yes, we anticipate that it will be. We'll mirror the trajectory of WFE, which is expected to be somewhat stronger in the second half of the year.

Deferred Revenue Increase
Q: Deferred revenue increased by $238 million; are customers still prepaying due to supply constraints?
A: When dealing with new customers whose creditworthiness may be uncertain—especially private ones—we require cash upfront before beginning tool manufacturing. That's what's contributing to the increase in deferred revenue.

Inventory Composition
Q: What's the composition of your inventory; is it more memory-related?
A: The decline in memory demand was dramatic, leading us to hold more inventory than needed specifically for memory. A larger portion of our inventory is targeted at memory, and as the memory market recovers, this inventory will decrease.

NAND WFE Growth
Q: Should NAND WFE exhibit the highest rate of improvement in 2024?
A: We wouldn't necessarily draw that conclusion. We believe every segment—NAND, DRAM, Foundry, Logic—will grow to a certain extent this year.

DRAM Spending and Upgrades
Q: How much did DRAM spending decline in '23, and what's the potential for node upgrades this year?
A: Overall, memory spending was down roughly 40%; NAND was down over 70%, so DRAM makes up the difference. In memory, equipment generally gets upgraded to the next node across the board.

Backside Power Impact Timing
Q: When will backside power become a meaningful driver for Lam?
A: It will rapidly become significant. Given the important role etch and deposition play and our strong position in processes like copper plating, backside power will meaningfully contribute as the industry shifts to more complex 3D architectures, which benefit our product offerings.

HBM and DDR5 Margins
Q: Do HBM and DDR5 differ from DDR4 in terms of margins?
A: From a margin standpoint, there's no significant difference. Building DDR5 die uses largely the same equipment as DDR4. The incremental aspects come with advanced packaging, such as deep silicon etch and electroplating, where we are exceptionally strong. This involves incremental equipment but doesn't materially change margins.

CSBG Growth vs. Tools Business
Q: Will your CSBG business grow in line with the tools business, or is there a lag?
A: It depends on the rate of WFE growth. Spares, services, and upgrades continue steadily and are expected to benefit as utilization returns. Overall growth will mirror WFE trends.

Deferred Revenue Practices
Q: Are customers still prepaying due to supply constraints?
A: We require upfront payments from new customers with uncertain creditworthiness before we start manufacturing tools, which explains the increase in deferred revenue.

DRAM Demand Dynamics
Q: How are China DRAM demand and core DRAM influencing your outlook?
A: The strength in DRAM is influenced by HBM and DDR5, along with activity from a China DRAM customer in the second half. Going forward, core DRAM and HBM are expected to grow, while China demand may adjust.

Customer Mix and Gross Margin
Q: Will you return to normalized gross margins as China mix changes?
A: The customer mix effects may lessen as we move through the year. Our gross margin remains strong in the March quarter guidance, and we expect normalization as the mix evolves.